How To Invest In ULIPs If You Are Risk-Averse

The stock market is risky, so it’s not for those who don’t like taking chances. Although there are products in between these two extremes, debt options are at the other end of the range.

Also, the only way to obtain respectable returns is to have some equity exposure if you are investing for the long term (more than five years). Although debt is secure, equity is your greatest option if you want to combat inflation.

So, balanced investment products that invest your money in both equities and debt are the best choice for you if you are a moderate investor who is willing to accept some risk while yet seeking some stability.

According to studies, investors can protect themselves from market volatility if the asset mix is constantly adjusted in response to market conditions. ULIPs are transparent insurance products that give you a range of choices to control your returns in the event of market swings. One such service by which you can control your returns is the fund switch option. Depending on your risk tolerance and how you balance your equity-debt portfolios, you may switch funds. A thorough understanding of the meaning of ULIP is essential.

Changing to survive a chaotic market

By balancing their investment portfolio between debt and equity, investors can easily protect their investments from market changes and maximise returns by using the fund switch option. Your risk tolerance, the volatility of the stock market, and your financial objectives should all be taken into account when transferring funds.

To leverage an upswing, for example, you should convert a sizable amount of your investment to debt or liquid funds if you anticipate a downturn in the stock market. As the market recovers, you should switch back to equities.

The ULIP return calculator is a simple tool that you can use to predict the return you might get at maturity by entering a few details.

Similar to this, you should move a maximum fraction or the required amount of your investment to debt/liquid funds at the proper time(s) as your policy approaches maturity or when you are approaching a life milestone where resources are necessary, such as child’s education or daughter’s marriage. This will assure good returns at the time of maturity or withdrawal for a sizable portion of the investment.

ULIPs provide a limited number of free switches per year, depending on the product.

When to change

This is another choice that will affect earnings. To further grasp this, let’s look at an illustration. Mr. Kumar, a 30-year-old working person, invested in a ULIP plan with a 30-year policy term. He decided to invest in an all-equity fund. How should he handle the distribution of his assets?

Mr. Kumar can initially keep all of his investment in stocks. As Mr. Kumar’s financial obligations grow as a result of marriage and having children after a few years (let’s say five), he should preferably cut his equity investment by 20%. Every five years, he should change the amount of his equity exposure to debt funds. It is advised that Mr. Kumar keep only 20% of his investment in equities funds over the past five years by assessing the investment each year and continuing to maintain this asset allocation.

How to change

In their customer portals, life insurers provide self-service options for policyholders to manage their fund moves. If you want to change the asset allocation on your ULIP plans, ask your insurer if they have a secure translation method in place. The main goals of this are to safeguard client interests and reduce system abuse.

Autonomous switching

If you lack the knowledge of the market or the time to monitor it, you might choose the asset allocation fund or “wheel of life” portfolio plan that several ULIPs offer. The fund manager for the insurer alternates between stock and debt funds in an asset allocation fund while taking the market into account.

The investment is managed according to a pre-determined plan with automated switches when using the “wheel of life” technique.

By selecting the “wheel of life” portfolio approach, the investor places his asset allocation in “auto” mode, gradually exposing the investment to debt from equities while taking into account the investor’s age and outstanding term. By doing this, risk and return are optimised based on the plan’s time horizon.

In order to maximise gains, market-savvy investors must understand the meaning of ULIP, and they can choose to manage their ULIPs when the market declines.

You can use a ULIP return calculator to estimate future returns and the value of a ULIP investment.