Ulips And Why They Make The Most Sense In Your Portfolio

As a new investor, you may want to try options that are low on risk but high on returns. The Unit Linked Insurance Plan (ULIP) is one such option, which is recommended for all investors wishing to build a balanced portfolio.

What is a ULIP plan?

A ULIP policy is an insurance product. It divides your payment towards it into two: One part pays the premium towards the policy, and the other is invested in high grade securities. The money keeps growing over a long period of time and creates a big corpus for the future. Since it is a life insurance product, it also helps your loved ones in your absence.

Why should I invest in a ULIP?

There are several reasons why you should invest in the best ULIP plan, such as:

* Suits all kinds of investors: The ULIP is aimed at all investors, whatever their appetite for risk. You can choose the securities you wish to invest in, which gives you flexibility to influence its outcome, and hence the outcome of your portfolio. If you are risk-averse, you can opt for balanced funds that divide your investment between equity and debt funds. If you have a higher risk appetite, you can choose equities which grow faster in a good market and lower risk over a longer time.

* There are no hidden charges: The ULIP policy does not have any hidden charges, as mandated by the IRDAI. As an investor, you are bound to pay processing charges and broker fees, and these are listed every time you make the next premium payment without any omissions. Thus, you know exactly what you are paying vis-à-vis the account performance. Besides, you get tax benefits on the ULIP premiums paid every year under Sec 80C of the Income Tax Act, 1961.

* Allows switching between funds as per market trends: Very few investment options in India offer the flexibility that ULIPs do. ULIP policies have few equals in terms of being able to switch between funds in the middle of the investment. If the market slows down, you can switch from debt to equity funds to minimise risk on the overall investment. Your investment manager can advise you on when to switch by monitoring the market closely. Most fund houses and insurers allow one free switch between funds every year, so you don’t lose any money on processing or switching charges. You get more opportunity to affect these switches on extending the ULIP term over 10 years to increase the corpus size.

* Grows money by compounding: You are free to exit the ULIP after the lock-in period of five years is over. By this time, you will have accumulated more money in the ULIP than you would by saving your money in a bank account or creating an FD. This happens with the power of compounding. However, it is advisable to stay the course and remain invested in the policy till it matures.

 

Managing investments successfully throughout the pandemic- Your guide

 From checking your mutual fund NAV in India to tracking investments made in equity mutual funds or debt funds, there are several aspects towards successfully managing your investments during a nationwide pandemic. The spread of the COVID-19 pandemic has led to a total lockdown throughout the country. All companies excepting entities in essential services have employees majorly working out of home while mutual fund firms are also functioning with minimal manpower at offices. The Association of Mutual Funds has also notified the Securities and Exchange Board of India (SEBI) sometime earlier that daily operations may be impacted at some levels. Yet, mutual fund houses are also striving to ensure seamless facilities for customers amidst these challenging times.

You can consider rebalancing your portfolio. Check out newer fund options including overseas mutual funds or international mutual funds if you wish to hedge against future expenses like global travel or higher education of children. Allocating a smaller portion of the portfolio towards international investments may help you enhance the quality of your portfolio while enabling you to benefit from positive market developments in fast-growing countries which have relatively shaken off the pandemic. However, consult financial advisors before making any such move as per experts. You can also try hybrid funds which may help in optimizing risks greatly. If you are investing in mutual funds via SIPs and do not wish to stretch a lot in the present situation, then you should know that everything will steadily get back on track in the near future.

People desirous of redemptions, new investments, switches or changes related to the account or profile, should keep a tab on the operational component of mutual funds. If digital platforms have been used, a majority of activities may be executed without any hindrances like before. However, people still conducting transactions physically may have to tackle a few temporary issues. Delays may be there in publishing the mutual fund NAV in India. Several fund houses have intimated investors with a view towards emailing transactions to them for processing as well. Many mutual fund houses have come out with mobile apps and internal digital platforms for investments and other online services.

You should look out for all such facilities offered by your mutual fund company. Investors may contact distributors for advice on proper digital platforms for meeting requirements of services and transactions. They may also initiate mutual fund transactions on investors’ behalf post approval of transactions via web-links through e-mails and SMS-es. The markets offer ample scope for investors to deploy funds in a suitably diversified portfolio of highly liquid, fundamentally solid and reputed entities.

Debt redemptions are comparatively more for fixed-income funds as per industry experts and managers. Year-end considerations may be stimulating these developments. You should also highlight liquidity above all else. Investors, if they have lower liquidity in their portfolios, should consider redeeming funds while building the necessary liquidity, irrespective of market circumstances. At the same time, if investors have ample cash in hand, they may consider fresh investment allocations while preparing to tackle some more volatility in the near future. You may consider sticking to your long-term investments unless your require funds urgently as per industry experts.