4 superb facts about ULIPs you should know about

ULIPs offer a mix of life protection and growth on investment. They are a great means to create future wealth with the freedom to invest as little or as much as you wish.

In recent years, the Unit Linked Insurance Plan (ULIP) has become enormously popular among new and risk-averse investors. The ULIP is, by far, an excellent means to create future wealth for practically anybody. It offers the freedom to play the markets with as little or as much risk exposure as you wish. Apart from good returns over the long run, it offers life coverage and risk mitigation for your invested capital.

Consider the following 4 facts you should know about ULIP schemes:

1 You can check the fund’s growth and also restructure it. Most market-linked investment instruments take their own course, depending on the vagaries of the markets and how well the fund eventually performs. You can exercise little control over how the fund grows (or not). But this is where the ULIP scheme differs from other market-linked options: you can monitor the growth of the fund daily by checking the day’s NAV (Net Asset Value) for the fund. Over time, you can map whether the fund is growing as per expectations or not. If it is not, then you can discuss restructuring the fund by allocating different units, with the insurer. This way, you can shape the outcome of the fund.

2 It offers a mix of savings, insurance and capital appreciation. The ULIP can be as affordable or as expensive as you wish. You are expected to pay the premium towards the unit linked insurance on a half-yearly or annual basis. This is money saved towards your investment without any more intervention from your side. At the same time, the ULIP scheme offers robust life coverage to account for unexpected mishaps in the future, which other mutual funds do not. Moreover, you get growth over your investment over the long run.

3 Unmatched flexibility and many different options. There are three main types of unit linked plans: Active/Aggressive (invest up to 100% in equities for those amenable to high risk), Balanced (Certain parts in equity, rest in debt) and Conservative (a minimum amount in equities and the rest in debt). Moreover, the ULIP schemeoffers the flexibility to switch between these types of unit linked insurance plans based on the fund’s projected growth and the investor’s risk profile. Switching helps to capitalise on current investment opportunities in both the debt and equity markets, and leading insurers also offer a few free switches. Thus, if the stock markets are on the downturn, you can switch to low risk ULIP schemes. The flexibility to switch adds a unique risk mitigation element to ULIPs.

4 It offers Rupee cost averaging like SIPs. SIPs (Systematic Investment Plan) offer the element of affordability towards buying the mutual fund. You can pay monthly instalments and do not need to time the investment as per upswings or downturns in the market. The Rupee cost averaging feature of the SIP is not unique to it, however – even the ULIP scheme offers the same principle on an annual or bi-annual basis. If you invest a one-time large sum in the ULIP periodically, the corresponding returns on the unit linked insurance are high.

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