Unit Linked Insurance Plans combine the Advantages of a Mutual Fund and a Term Insurance Policy. A part of the premium paid by an investor (risk premium) goes towards extending life coverage to him/her. The surplus is invested into the debt and equity markets as per the choice of the investor; the returns being directly related to the performance of the funds they invest in.
All Unit Linked Insurance Products offer several fund options to their customers. Typical fund options would include:
1. Equity Funds
2. Balanced Funds
3. Debt Funds or Fixed Income Funds
Of these, ‘Equity’ funds primarily invest in equities or shares. While a Fixed Income fund would primarily invest in Corporate bonds, Government bonds and/or Money Market securities, Balanced funds tend to achieve a balance between equity and debt funds by investing into both the equity and debt markets.
Customers are required to choose a fund option at the time of their initial investment.
Subsequent premium payments are also invested into the same ‘fund’ as initially selected, unless the customer has raised a ‘Premium Redirection’ request to invest the premium payment into a different fund. Customers are also given the option of ‘switching’ their investment corpus between funds.
To Maximise your ULIP returns, follow the given action plan.
1. Make ‘Premium Redirection’ depending upon the state of the markets.
When making a premium payment on your existing ULIP policy, give due consideration to the state of the markets.
In a bull market when most stocks are flying high and trading above their intrinsic value, it is wise to direct a new premium payment towards a ‘debt’ fund. Similarly in a ‘bear’ market when most of the stocks are trading below their intrinsic price, make your premium payments towards an ‘equity’ fund.
This action plan is in line with the investment strategy which tells us to buy stocks when their prices are down so that we can sell them later at a premium.
Note that one should also follow this strategy at the time of making the initial ‘fund’ selection at the time of taking a new policy.
2. Make regular ‘Fund Switches.’
When the markets are sliding, make a switch from an ‘equity’ fund to a ‘debt/income’ fund. This way, you can protect your investment corpus from falling in value; while at the same time earning a decent 6-10% return on your investments.
Once the markets start recovering after a dip, re-switch your portfolio towards an ‘equity’ fund to leverage the upswing. Thus by following this strategy, your protect your investment value during a downtrend while leveraging an uptrend to maximise returns.
All ULIP products offer a certain number of free switches during the year.
Note: You can make a ‘fund switch’ or a ‘premium redirection’ request by either visiting your branch or through your online policy manager.
Your Strategy when a ULIP policy approaches Maturity.
When your policy approaches maturity, make a ‘switch’ towards a debt fund so that your maturity amount becomes guaranteed.
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