Everyone has different investment needs, so there are different types of investment instruments available in the market. Some offer high risk-to-reward ratios, while others have low but stable returns. Tax benefits are also available for some investments. Additionally, one can invest in schemes that offer both insurance cover and return on investment. In order to come up with a plan that meets their needs and risk profile, investors have to trade some advantages over others.

Investing in market-linked products is becoming more popular among young Indian investors, who are increasingly risk-averse. They also consider tax savings as one of the major reasons to invest their money. If one could invest in market-linked products that have high returns potential, get life insurance in addition to returns, and get tax benefits for those investments, wouldn’t that be a great thing? In ULIP are specially designed to meet your needs.

What is a Unit Linked Insurance Plan?

Unit Linked Insurance Plan is the full form of ULIP. Unit-linked insurance plans combine insurance and investment. While only a small percentage of the money invested goes to the security of your life, the majority is invested in the stock market. The policyholder can make monthly/annual payments.

Insurance companies offer a variety of wealth-building options through unit-linked insurance plans. ULIPs provide investors with the ability to create and manage multi-asset portfolios and invest in a wide variety of assets. In an investment plan, a ULIP can serve all three of the following purposes:

• wealth creation
• conservation of money
• distribution of wealth

These three objectives are achieved by ULIPs, especially their wealth creation features. Still, why is a portfolio management strategy necessary? What does it gain, as opposed to investing in just one instrument? Why not invest in one place and keep it for a long time?

The investment component of ULIPs helps policyholders align their investments with their changing risk tolerance levels. This is especially true when a fund switching facility is available. The risk tolerance of individuals decreases with age. Policyholders can meet the changing demands of their ULIP investments through fund switching facility. If required, they can switch from equity funds to debt funds.

Portfolio Strategies You Can Use With ULIPs

Having a better understanding of how a ULIP portfolio works will help you identify the best strategies. The following are the four most commonly used strategies.

Portfolio Strategy Based on Triggers: Using this strategy, you will benefit from price fluctuations in the equity market. This portfolio strategy includes the following features.

• According to this principle, you should buy low and sell high.
• Generally, equity and debt are divided in the ratio of 75:25 when you invest.
• In addition, as the market moves, your fund manager will adjust your portfolio accordingly if the trigger event occurs.
• Trigger events are typically a 15% price change in your equity investment.
• You will see an increase in the equity component of your portfolio when the trigger event occurs.
• After these returns, you can reinvest in the original ratio.

Portfolio Wheel of Life: Wheel of Life portfolio strategies are designed to help you take advantage of the potential for higher returns in the equity market early in your investment journey, when you may be more risk-tolerant.

• You will initially invest 100% of your funds in equity funds.
• The equity segment of your portfolio can consist of different types of equity investments, which include midcap funds, large-cap funds, etc.
• As the investment horizon gets longer and the maturity date approaches, your exposure to equities reduces.
• Instead, your money is redirected to more stable assets like debt funds, bond funds and liquid funds.
• Additionally, stable equity components such as blue-chip funds are preferred over the rest of the equity segment.
• At maturity, all of your investments are allocated to debt, and your equity exposure is zero.

Investors can choose a portfolio strategy by: Investor Selectable Portfolio Strategies provide policyholders with investment control, as the name suggests. Using this strategy, you will be able to choose your asset allocation.

• You can either choose to invest all your money in one fund or split it across equity, debt and money market instruments. You have complete control over how your assets are allocated across asset classes.
• Here, an investor has various options ranging from very high risk to very low risk, with varying degrees of risk.
• Based on your changing risk levels and market movements, you can adjust your asset allocation as needed during your investment period.
• ULIP portfolio is formed or modified by you during the investment tenure, hence giving you a chance to take the driving seat.

Automatically transfer portfolios: Through systematic asset diversification, an automated transfer portfolio strategy works to give you the returns you need while taking on a moderate level of risk.

• Your premiums are initially applicable on low-risk funds like bonds and liquid funds specified by you.
• In either case, a specific percentage of your investments will be converted into other funds at the beginning of each month – which you will also specify.
• You can choose these funds based on your risk appetite and life goals.

Disclaimer: Content Produced by PNN