Do you often find yourself looking for ways to invest your money so that it remains safe and saves you taxes at the end of the financial year? If the answer is yes, then you will likely end up making wrong investment decisions and within a few years, you will feel as though most of these investments are worthless in the long run.
Tax-saving instruments are usually locked in for a long period of time, preventing you from any withdrawal. That is the reason you need to plan them properly in order to ensure liquidity during emergencies, save taxes, and also make your investments generate some wealth during the investment period.
That is why you need Unit Linked Insurance Plan (ULIP). These plans are a great investment option that allows you to invest first and meet your financial goals in the short and long term.
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In this article, we will discuss types of ULIPs, everything there is to know about a ULIP plan, and how to choose them in order to make an informed investment decision.
Types of ULIP Plans
Based on your risk appetite, there are different types of Unit Linked Insurance Plans to select from.
These funds are suited for investors with high appetite for risk. Equity ULIPs are high-risk, high-reward investment options with an increased risk of suffering losses. But can also be very rewarding.
Debt funds, on the other hand, are low risk. However, they also offer lower returns as compared to equity funds. This option is ideal for investors with low to moderate risk tolerance.
These funds balance the risk between equity and debt funds. As an investor, you can choose how much risk you are willing to take. Based on your preference, you can choose a combination of funds that suit your needs and budget.
Tips to Choose the Right ULIP Plan
Here are some tips to help you choose the right Unit Linked Insurance Plan for your investment portfolio.
- Know your risk appetite
As has been mentioned above, a ULIP fund can be chosen as per your risk preference. If you prefer your investments to be low risk, you can opt for debt funds. However, if you are comfortable with high risk, then you can choose equity based ULIP as preferred funds. Similarly, you can also choose a combination of debt and equity if you want to spread your risk. It is important to know your risk preference in order to choose the right asset class for your ULIP plan.
- Assess your financial needs
Thanks to the life cover component in a unit-linked insurance plan, your family is secured against financial risk in case something happens to you. If you want to ensure that your family is adequately covered in your absence, you should choose a ULIP plan with a high sum assured. This will allow you to keep your family secure against all kinds of financial turmoil that they may face if you are no longer there.
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- Determine your financial goals
When it comes to choosing a ULIP plan, your financial goals will play a huge role. Your goals and their respective timelines will have an impact on the risk profile of the asset classes you finally choose. For instance, a person in their 20s or 30s saving up for their retirement can consider investing in an equity based ULIP plan because you have many years ahead of you before you reach your retirement. However, if you are saving for your child’s education, you have fewer years on your hands. So, consider opting for low-risk debt funds that offer assured returns in short term. These options will spread the risk and offer you stable returns.
- Look for flexible investment options
Your needs, goals, and risk appetite will not remain the same throughout your life. These aspects will change as per your family’s growing needs. Therefore, when you choose a Unit Linked Insurance Plan, it is imperative that you look for flexibility. You should be able to switch between funds during your tenure and also make partial withdrawals to meet your urgent financial needs. Be sure to look for top-up facility as well so that you are able to invest more as your income increases. This option will invest over and above your ongoing premium plan.
Unit Linked Insurance Plan is a great option that can help you in many ways. Since it offers multiple benefits under the umbrella of a single policy, you can easily keep a tab on all your investments and also protect your family against eventualities. Usually, you are able to choose between multiple payment and payout methods as well. As you choose a ULIP plan for your financial portfolio, make sure that it meets your needs and future goals.