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How to Invest in ULIPs

August 04, 2021

Many individuals rely purely on savings to build up money for the future. Unfortunately, given the rate of inflation, savings will never be enough to enjoy your retirement. Everybody has to invest and grow their money to meet their financial goals. But, the market can be volatile and could result in losses instead of gains. If you’re risk-averse, you can dip your toe in the investing pool with the help of Unit-Linked Insurance Plans (ULIPs). These innovative products provide you with more than just investment opportunities. ULIPs offer life cover as well, providing added financial security for your loved ones. Uniquely, ULIPs also allow you to choose how and where your money gets invested. Here’s a guide on everything you need to know about how to invest in ULIPs.

1. Start Slow

When you purchase a ULIP, you can decide how much of your money goes into what kind of funds. Equity funds are high-risk but they also provide higher returns. On the flip side, debt funds have little to no risk, but they do not offer large returns. You can understand how both funds work by opting for a balanced fund. Here, you can invest in both equity and debt instruments. Ideally, start with more debt and fewer equity funds. You can watch your investment and track your returns. If you’re comfortable with how your equity investments are doing, you can switch your money around.

2. Maximising Returns

The market is fluid. So, you need to learn how to maximise your returns by predicting the ups and downs. When you expect the market to gather speed, you should put more money in equities over debts. By doing this, you can earn incredibly high returns in a fairly short period. But, if you expect the market to dip, move money away from equities into debt funds. Remember, debt funds offer low risk, so they do not rely heavily on the market. When the market is faring badly, it’s always better to have debt funds that provide steady returns.

3. Switching Funds

When you’re learning how to invest in ULIPs, you need to make yourself familiar with switching your funds. As an investor, you have the power to make the changes yourself. You can either submit a written form to your insurance provider or make the switch online immediately. Your insurance provider will allow you to make a certain number of free switches every year. After that, every switch will attract a small fee. To make the most of your investment, you must understand how and when to switch your money. By making smart switches you can maximise your returns while minimising expenditure.

4. Long-Term Switching

Even if you don’t move money around based on market trends, you should switch funds based on your age. If you’ve purchased your ULIP in your 20s or early 30s, you can opt for more equities over debts since you have time to cover up any losses with substantial gains. But, as you near the end of your policy term, you want to play things safe. A market upset at this point could leave you with almost nothing despite staying investing for decades. As you reach your 50s, you should switch your investment portfolio. Opt for more debt instruments over equities. The returns may slow down, but you won’t have to brace yourself for losses.

5. Automatic Switching

Despite learning how to invest in ULIPs, many people still struggle to switch their funds on time. Thankfully, you don’t have to make the switches by yourself. Now, you can opt for something known as automatic switching. Your fund manager will make the switches on your behalf depending on market predictions. The fund manager will make investments based on your age, the policy term and your financial goals.

Learning how to invest in ULIPs is easy. You need to think about your goals and allocate your assets accordingly. If you aren’t confident about your abilities to predict the market, don’t worry. You can ask your fund manager to assist you. Whenever you purchase your ULIP, make sure you have a conversation about your financial goals. Once you’ve made your vision clear, your fund manager will come up with a plan to help you achieve it.

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