Types of ULIP Funds You Should Know About
Unit-Linked Insurance Plans (ULIPs) are life policies that come with an additional investment feature. If you are looking for ULIP plan meaning, understand that it is a multi-benefit policy that will protect your loved ones while creating a significant corpus. While the life insurance benefit helps your family stay financially stable in your absence, the investment component of a ULIP enables you to grow your money. With a ULIP, you have flexible choices for investment. ULIP comes in different types, and depending on your monetary goals and risk appetite, you can select your choice of fund.
As the policy grants you the opportunity to decide your risk-reward balance, the power remains in your hand. Below is a list of the most common forms of ULIP funds available in India.
- Bond and fixed-income funds
As the name suggests, this type of ULIP invests in funds or bonds that provide a fixed income. Debts instruments like fixed income or corporate bonds and government securities are primary areas of investment for this kind of ULIPs. If you have a low risk-taking ability and are looking for long-term investment options, this type of ULIPs will serve you the best. With fixed income fund ULIPs, your investment portfolio will be more stable. Due to its low risk-taking measurements, this type of fund offers medium-level returns.
- Equity funds
The primary target of the equity fund ULIPs is to help you accumulate a large fund from your investment. For this type of ULIP, a large portion of the premiums is used to make investments in the equities of different companies. Each insurer has its list of small-cap, large-cap, or mid-cap company stocks where the money is invested. Fund managers execute this process; they identify the company stocks that can offer higher returns. Generally, in the case of this kind of policy, anything between 20% to 70% of the ULIP funds are invested in equities; the exposure can be over 70% as well, depending on the terms and conditions of the insurer. These funds offer greater returns; however, they have a higher risk as well.
- Liquid funds
If you are a conservative investor and wondering, “why should I invest in ULIP,” you will be happy to know that liquid funds come with a low-risk factor. These funds invest a considerable portion of the premium in debt-based securities that come with short investment terms, bank deposits, cash- equivalent securities, and money market instruments. Compared to the other two options, liquid fund ULIPs offer lower returns; however, practically, they are risk-free.
Which option should you take?
With multiple choices available with ULIP funds, it can get tricky to decide where to invest your hard-earned money. You need to consider your financial goals and risk-taking ability to make a wise investment decision regarding the choice of ULIP fund. If you have a high risk-taking capability, consider investing in equity funds. It will reward you with higher returns. However, if you do not want to take the risky route, liquid funds will work best for you. The return will be comparatively low, but so will be the risk. For a balanced option, bond and fixed income fund ULIPs are the best choices. They offer moderate returns with lesser risk.
If you are still asking yourself, “why should I invest in ULIP,” the switching feature will convince you. When investing in ULIPs, you can choose the type depending on your risk appetite and financial goals. As your needs change, you may decide to opt for a different investment portfolio. This is where the switching feature can help. ULIPs allow you the flexibility to change among fixed income, equity, and liquid funds. This ensures the premium’s distribution across the funds as per your updated requirements.
Now that you understand the different types of ULIPs better, it will be easier to decide which fund aligns with your needs. With the suitable form of ULIP fund, you can protect your loved ones and effectively create a sufficient fortune as well.