Achieving financial stability is among the best ways to conquer our goals and help our loved ones live out their dreams and aspirations. There are several plans like mutual funds, real estate, stock market investments for long-term wealth creation. However, these plans come with varying degrees of risk. Therefore, you can opt for a ULIP plan to plan your financial future, which is considered a profitable investment.
What are ULIPs?
Unit-linked insurance plans are insurance plans that offer you the dual benefit of insurance coverage and market-linked returns. With ULIP policies, you get the access to invest in a wide range of fund options. Along with this, they are optimal choices for long-term wealth creation, as you get to improve your returns with the power of compounding as well.
Here’s How You Can Use ULIPs for Wealth Creation
You can consider the tips listed below to earn suitable profits through your ULIP investment:
- Efficient asset allocation: Efficiently allocating your assets involve evaluating your returns and risk portfolios. Allocating your assets across different funds can help you create a diverse portfolio and spread the risk.
A great benefit of asset allocation is that even if a specific asset isn’t performing well, the profits from a different asset can help you maintain your portfolio’s balance. This way, the overall risk of the investment is lowered. You must allocate the assets for your ULIP investment after carefully evaluating your risk profile.
- Selecting between debt and equity funds: You must select the funds for your portfolio based on an individual’s risk profile and after looking through a fund’s performance. Different fund options have different returns and risk features.
For example, you can also earn higher returns by investing in an equity scheme. However, there is a risk component attached with equity funds. While debt funds offer lower returns than equity funds, the risk with debt funds is also low. Therefore, you must select between the two based on your risk profile. However, you can also opt for a balanced fund that offers you the benefit of both equity and debt instruments.
- Life-stage adjustments: When you’re young, you will have a high-risk profile. Your risk profile will be minimised based on your liabilities and choices as you grow. However, your financial obligations may rise as you reach your retirement age. Therefore, you must adjust your investments as per your changing risk profiles.
With ULIP insurance, you can adjust your investment during your policy’s tenure with the ability to switch between different funds. Therefore, as your risk profile increases, you must move your investment from equity-based funds to debt-based funds. This way, the profits you have earned through equity funds are protected from market volatility.
- Check for semi-controlled switching: Most policyholders don’t have the time or expertise to judge a fund’s performance accurately. So, they may not know when to switch their investment from debt to equity. Therefore, insurers provide the option of semi-controlled switching in ULIPs. With this option, your fund will be switched as per your insurer’s instructions.
You can also opt for programmed switches monthly. In this method, at a predetermined date every month, you will have to decide the funds from which a predetermined amount will be switched, and the funds you wish to switch it to.
- Loyalty additions: Certain insurers like Tata AIA also offer loyalty additions with the Tata AIA ULIP plans. This way, you can earn additional bonuses along with the profits you have earned through the plan. Therefore, opting for such insurers for purchasing ULIPs can be quite profitable for you.
As per investment experts, ULIPs are optimal choices for wealth creation. With a suitable ULIP plan, you can easily achieve your investment goals. However, if you wish to maximise the wealth you earn through this wealth creation plan, you can follow a few simple steps. First, you must invest in funds per your risk profile and switch between funds based on your changing risk profile.