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Diversify your investment portfolio with ULIPs

Diversify your investment portfolio with ULIPs
September 07, 2023

In this policy, the investment risks in the investment portfolio is borne by the policyholder

A Unit Linked Insurance Plan (ULIP) these days is a popular choice for investors as it comes with a dual benefit-- a combination of a life cover and investment in market-linked funds to generate returns. The profitability of a ULIP plan largely depends on the investment portfolio, which the policyholder can choose depending on their financial needs, convenience and risk tolerance. Here, diversified investment portfolio can always earn you the maximum possible returns. The ULIP calculator can thus be of great help.

A ULIP plan lets you pick the market-linked funds to invest in. Depending on your risk appetite, the investment portfolio can have:

1. Only equities to fetch you the highest possible returns but with greater risk

2. Only debts to assure you risk-free but lower returns

3. A mix of both to yield the maximum possible return at minimized risk.

The ULIP plan allows you to switch funds for a specific number of times within your policy period. You can thus restructure your investment, based on your changing needs and risk appetite. But to make the most of your ULIP investment, it’s important to have a diversified portfolio at any given point in time.

Here’s all about how to do it efficiently.

Diversifying your portfolio: The basics

A diversified portfolio means calculatedly allocating your funds in a mix of assets that helps in minimising the market risks and maximizing your returns, protecting the investor’s capital in the process.

Along similar lines, a ULIP fund allows its policyholders to invest a part of their premium in a mix of equities and debt funds in their preferred proportions balancing their risk tolerance with expected returns. A stable and efficiently diversified ULIP portfolio safeguards him from market volatility, an unexpected turn of events or economic conditions and leads him towards a successful long-term investment.

Proper portfolio management thus depends on two major focuses:

a) Maintaining the portfolio based on the risk-taking ability of the investor and

b) Making the most of market conditions.

Here one needs to remember, the rate of return is proportional to the risk taken by the investor, based on his needs, comfort and convenience.

However, too low risk takes a toll on the investment growth while risking it too high can make you incur more losses. So, portfolio management essentially seeks a proper balance.

How do you diversify portfolio in ULIP?

Depending on the ULIP plan chosen, you can shift from higher equity shares to a greater proportion of debt funds in your portfolio and vice versa. This fund switch is allowed multiple times during the policy period while some plans offer unlimited switches. Suppose in the initial days of investment, you are seeking quicker growth of returns. Here, it’s ideal to keep a higher share of your investment in equity funds. Going forward, if you prefer safer and guaranteed returns, it would be a wiser bet to restructure your portfolio and invest more in bonds and fixed-return schemes.

If you are someone with lesser or negligible market knowledge or don’t have sufficient time to stay updated on market fluctuations, it’s always advisable to get your financial advisor to do it on your behalf. Many ULIP plans offer you an auto mode option with a specified fee, where a dedicated fund manager takes care of the investor’s portfolio management to ensure the best possible returns. Here your funds are automatically allocated based on your preferred strategy, reaping benefits from the market conditions, yet tackling the risk.

The ideal way to diversify

Before you take charge of your investment portfolio, it’s important to keep in mind three golden rules.

Plan the goals well: Identify your financial goals well ahead, rely on the ULIP calculator and choose your portfolio accordingly. Decide whether you need short- or long-term investment, the size and type of assets to invest in and if you need a steady or quick growth of returns. It’s the best and the most profitable practice.

Spread your investment: Invest in various sectors and market regions to optimize your returns.

Review portfolio regularly:  Keep checking the performance of your funds and the volatility of the market to ensure your portfolio is efficiently managed.

Rest will fall into place.

Related Articles:

1. Confused between Sum Assured and Fund Value in ULIPs? Know them at your fingertips


3. Benefits of Buying Online ULIP over Offline ULIP - Explained

4. Types and Benefits Ulip Plans - Here's What You Need to Know

5. 6 Tips to Maximize your Gains from ULIP

6. What is ULIP (Unit Linked Insurance Plan)?

ARN - ED/08/23/3788

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.