What is ULIP
Investors might consider a Unit Linked Insurance Plan (ULIP), which combines parts of insurance and investing. A portion of the premium you pay for a ULIP is used to provide you with insurance coverage, and the remaining portion is invested in the stock market.
The various ULIP plan types can often be divided into groups depending on the types of investments your premium is made in or on their capacity to produce wealth. Here is a brief overview of the most common ULIP investing options available in India. Let us understand what ULIP is and its types.
- ULIPs according to the kind of funds
Not each and every ULIP financial market investment kind puts their investors’ money in stocks. Some of them also make investments in other financial products. Based on the types of funds they invest in, the many forms of unit-linked insurance plans are described here.
- Equity
The money from the investors is utilised to purchase equity shares in one or more companies. Equity investments have a higher risk due to their direct correlation to changes in the financial markets. Nonetheless, there is still more room for growth. As a result, ULIPs that invest in equity are ideal for investors with a high level of risk tolerance.
- Debt
In these types of unit-linked insurance plans, the funds are invested in debt instruments such as debentures, corporate bonds, government bonds and securities, and fixed-income bonds. Although these investments have a medium to low risk, they only offer modest returns.
- Liquid funds
These ULIP plans are excellent for accomplishing short-term financial goals since they invest customers’ funds in highly liquid money market assets like treasury bills, call money, and certificates of deposit (CD). In contrast to other ULIPs, the maturity periods of these funds are often a few weeks to months shorter. These ULIPinvestments often have high credit ratings, making them a secure investing choice for those with minimal risk tolerance.
The ULIP calculator is a convenient and simple tool that you can use to predict the return you might get at maturity by entering a few details.
- Balanced funds
In an effort to lower risk, some ULIPs invest in a combination of equities and debt assets. The risk is successfully distributed across high-risk and low-risk investment options by assigning one portion of the funds to equity and the other to fixed-income debt instruments. As a result, returns from balanced funds are more stable and far less volatile than returns from pure stock funds.
- Cash funds
Term deposits, cash deposits, and market funds are examples of very low-risk cash fund vehicles to that some types of unit-linked insurance plans allocate their funds. Even if the returns given by these ULIPs are the lowest of all the alternatives, the risk is also very lower. They are an excellent choice for those who want to minimise risk and are extremely risk-averse.
ULIPs that focus on generating wealth
The capability of unit-linked insurance policies to generate money also determines how they are categorised. These strategies were developed specifically to increase return on investment.
- ULIPs with a single premium and regular premium
A single premium ULIP plan only necessitates a single premium payment, which is due at the time of buying, as the name implies. A regular premium ULIP, on the other hand, enables you to make premium payments on a monthly basis from the moment of purchase until the plan’s maturity. According on your financial situation, you can choose to pay the premiums in monthly, quarterly, semi-annual, or annual installments.
- Life staged ULIPs
These unit-linked insurance programmes are based on the idea that as investors age, their willingness to take risks declines. Thus, these plans split the premium into equity and debt instruments, investing a portion of the premium in each. In the beginning, a larger amount of investment is allocated to equity than to debt.
- Guaranteed and non-guaranteed ULIPs
Guaranteed ULIPs offer a strong emphasis on capital preservation. These ULIP plans to lessen your exposure to market risk because they only invest a small portion of your premium in stocks. The greatest options for investors looking for steady returns over a longer time horizon are guaranteed ULIPs. On the other hand, non-guaranteed ULIPs enable you to invest a larger amount of your premium in the stock market, which is intended to maximise wealth building. ULIPs that are not guaranteed have larger rewards but also greater risk.
You can use a ULIP Calculator to find out the approximate future returns and the value of a ULIP investment.
