How to select a ULIP according to your portfolio?

Back in the day, investments typically comprised Fixed Deposits (FDs), gold, or land. And these traditional investments are still relevant for most populations. However, wise investors have realized that they should not put all their eggs in one basket. With a variety of investment options available, it gets difficult to choose the best ones. ULIPs are a popular investment choice amongst several investors who want to create a stable and growth-driven portfolio. However, choosing the best ULIP plan can be tricky as ULIPs are not only an instrument of investment but also are a type of life insurance.

Four factors to consider before selecting a ULIP

When you are selecting a ULIP plan, there are several decisions to be made. Be it choosing the life cover your family will receive in your absence or the type of fund to put your money in. 

Here are four factors you should consider before you select a ULIP- 

Your risk-taking ability

Before selecting a ULIP plan, consider what risks you will take in it. Young investors usually can select ULIPs with high risks. However, someone who has dependents may not take huge risks. Also, someone may already have a well-established equity portfolio and the meaning of ULIP for them would equate to a ‘safe’ investment. At the same time, there would be others who are hesitant to invest in the equity market directly and would rather take the risks a ULIP equity fund offers. Also, it is important to check that the ULIP you choose allows you to switch between different fund options based on market fluctuations. 

Based on your risk-bearing ability, ULIPs are divided into three broad categories –

Equity-based ULIPs– As the name suggests, the company re-invests the money that you invest in these ULIPs in the equity market. They have high risks involved, but usually offer high returns too. If you have idle savings, equity-based ULIPs can prove quite rewarding. However, there is also a risk associated as markets fluctuate.

Debt-based ULIPs- If you want to avoid risks, debt-based ones are the ideal plan for you. Here, your money is in safe instruments like fixed-income bonds, government bonds, or corporate bonds. However, with the low risk involved, these usually give low returns, when compared to equity.

Balanced ULIPs- When you want to take the risk but not go all in, balanced ULIPs are a flexible option to go for. These funds comprise both equity and debt instruments, so they have moderate risks associated. Also, these bonds usually offer more returns than debt but less returns than equity-based ULIPs.

Use a ULIP return calculator

When you are buying a ULIP plan, a ULIP return calculator will give you an idea about the various elements of your plan. It will give you an idea of the amount you will receive after maturity based on the amount of premium you pay and the tenure. It considers the tenure of the policy, the premium, your age, and the average return expected based on the investment you have chosen. As ULIPs are subjected to market risks, a ULIP calculator helps in estimating the returns.

Consider your financial goals

Ensure that when you are browsing through different ULIPs, you choose the one that is aligned with your financial goals. Whether you are accumulating funds to build a retirement corpus, buy a new house, or fund your child’s education, whatever your goals are, keep them in mind when selecting a ULIP. Say you will need some funds after 10 years when your child goes to college. Consider a 10-year ULIP plan where you will receive a sum assured after the period of 10 years. This will help you utilize the funds you received from ULIP towards your child’s education. 

Check the amount of life cover 

By definition, the meaning of a ULIP for most individuals is an instrument that offers a life cover and invests your money at the same time. It is important to not forget about life while buying a ULIP. Consider the amount of life cover you need to protect your loved one in your absence. Take into consideration the financial needs of your family and your financial standing before selecting a life cover amount. Experts usually recommended going for plans that at least offer minimum coverage of an amount that is ten times your annual premium. 

It has become quite easy these days to check the best ULIP plan for oneself on the internet. You can simply run a search, compare the best plans, and choose the one that fits your needs. Do take into consideration the factors mentioned above while selecting one.