When an individual invests in the market, they do so with the understanding that their funds might go through ups and downs. Market performance is based on several factors, many of which are beyond the control of a single investor. However, this does not mean that those who hate market risks should absolutely stay away from market-linked investment. Today, there are various products that help you to enjoy fund growth in market highs while tiding over market lows in a stable manner. A ULIP plan is one such product. Let’s learn more about the same in this article.
How is a ULIP better than other investment options in terms of fund growth?
A ULIP is a life insurance product that offers the policyholder a chance to invest in financial instruments as well. So, aside from getting returns on your investment, you also get the benefit of life insurance. This dual offering is one of the best ULIP benefits. The premium for your ULIP policy is used to build the life insurance corpus as well as to invest in the market.
What makes ULIPs a really interesting option is that you can invest in equity funds or debt funds depending on your risk preferences. Not only that, but you also get to switch funds from one kind of asset class to another. While these benefits are profitable, there are some tips you should keep in mind to stabilise your money in terms of risks and growth.
Tips to grow your fund while avoiding market risks
Invest as early as possible
This is especially applicable if you are investing in the market via ULIPs. When you invest early, you have a longer time frame to accumulate savings and invest correctly. This ensures that your funds benefit from compounding for a longer period. More compounding means better results, which reduces the need to take on risks on your investment.
Additionally, you will also incur a lower premium on your ULIP plan when you buy it at a young age.
Review your risk appetite as per your life stage
The risks that one can take with their investment differ from age to age. When you are young, you have lesser dependents. This means that generally, most people have a higher risk appetite at this stage. However, as you marry and have children, you seek more stable forms of investment because you are responsible for the well-being of several people. Thus, one should review the number of risks they can take at that point in life and direct their funds accordingly.
You can opt for the wheel of life portfolio strategy, where all your money is initially invested into equity funds. Then, it is transferred slowly to debt funds. By the time of maturity, your investments are 100% into debt instruments. Similar and contrasting strategies are also provided to suit your changing risk appetites.
Opt for balanced funds
One of the most popular ULIP benefits is that you can choose a balanced fund portfolio. Within this portfolio, you get an equal combination of equity funds and debt funds. Even if the market is going through a volatile period, you can rest assured that it is balanced by the debt funds experiencing a relatively stable period.
Choose an insurer that offers free switches
Many insurers these days offer unlimited free switches in a year. This is a great feature to look for, as it ensures that you can transfer funds when you see fit without incurring any charges. Have you taken the risk of investing in equity but are not really happy with the decision as the markets are performing abysmally? With the help of a free switch, you can easily get all your equity investment transferred to debt funds.
Try the rupee cost averaging method
In the rupee cost averaging method, the investor buys equity units such that the costs average out over a long period of time. When the market is undergoing a low, you get a higher number of units and a lower number when the market is experiencing a high. This approach reduces the volatility that one is bound to go through when investing in the market.
You should also read the terms and conditions of the policy you are signing up for. The different types of ULIP policy documents provide a brief overview of the kind of risks you can expect. Additionally, you should also review the ULIP illustration before you go ahead.