ULIP (Unit Linked Insurance Plan) is part investment, part insurance plan that provides life coverage as well as returns of investment. The premium that is paid for a ULIP plan to the insurance company is invested in different funds, and the remaining amount is paid towards the insurance policy. If you have purchased a ULIP, you can choose the funds where you want to invest depending on your risk appetite, financial goals.
ULIPs are known for giving valuable returns. One of the critical reasons why ULIPs are immensely popular is the fact that expert fund managers manage the investment. The experts also recommend appropriate funds to suit your specific needs. Another major reason why ULIP is known to provide valuable returns is that it gives you the flexibility to switch between the funds to suit your changing financial goals.
What are the different types of ULIPs?
ULIPs comprise of a wide range of fund options. They are categorised into three broad categories including, low-risk, medium-risk and high-risk. The various types of funds are as follows:
Cash Funds – These are also known as money funds and are a category of mutual funds that allow easy access to invest in. They are low-risk and give low returns.
Balanced Funds – Balanced funds are when you invest in two categories of equities to even out the risk. This means that a portion of the money is invested in high-risk funds, and the remaining part is invested in low-risk funds. The combination of both makes evens out the odds and balances the risk.
Bond Funds – These funds are for corporate bonds, debt funds, government and fixed deposit securities. With a blend of risk and no-risk products, they give investors medium-range returns.
Equity Funds – Equity funds are instruments that deal with company stocks. They are said to be high-risk products, but it also offers high returns.
Why should you invest in ULIPs?
Risk appetite – When you invest in ULIPs, you get to decide the magnitude of risk in every investment. If you want less risk, then you can invest in low-risk funds, and if you’re going to take a chance, then you can go for higher risk funds.
Transparent – ULIPs are known to be transparent, you know exactly where your money is going and what charges are involved in each transaction.
Flexibility – ULIPs are known for the flexibility they offer. In other investment plans, you cannot change the plan where you keep your money. But that is not the case with ULIPs. Here you can switch between debt and equity funds.
When the market is volatile, you can invest in a debt fund, and when the market is stable, you can go back to equity funds again.
Long-term – ULIPs are an excellent long-term investment option. They have a minimum of 5-year lock-in period. If you decide to exit the plan after five years, the returns will be far higher than any regular savings scheme because of compounding interest.
Life Cover – Finally, let us not forget that it is primarily an insurance product. Therefore, they offer both protection and investment plans, all in one premium. This makes it more beneficial as there is insurance and assurance in a single plan.