Everyone dreams of enjoying a financially stress-free and relaxed time in their life. But, a job or business cannot help you in achieving this. Apart from your core earnings from your profession, it is also essential to do appropriate financial planning in order to have a secure future for oneself as well as family members.
Hence, here ULIP policy comes into the picture, which helps you in achieving your financial goals. It not only acts as a life cover for you and your family members, but it is also generating a regular source of income from different fund investments. Let us understand what is a ULIP Policy and what are the different fund options.
What is a ULIP policy?
A Unit Linked Insurance Policy, or ULIP, is one of the most reliable financial instruments that can offer a wide variety of features and benefits to policyholders. ULIP insurance can give you the required financial security and tax benefits to plan your future. The plan also helps you in fulfilling all your future life goals and milestones.
So, how does a unit-linked plan work? In a ULIP policy, the policyholder has to pay the premium amount either monthly, quarterly, semi-annually or yearly. This premium amount is further split into two parts – a part of the premium amount is paid for life insurance while the remaining amount is invested in funds and market-linked securities for wealth accumulation. The policyholder, as per his risk-taking capacity, can choose the fund in which he/she wishes to invest. Also, the policyholder can switch between the top-performing ULIP funds to improve returns.
Different Fund options to Invest in ULIP
There are different fund options available in top ULIP plans. They are Debt funds, Equity Funds, Balanced/Hybrid Funds and Liquid Funds. There are several insurance companies, such as Tata AIA Life insurance policy plans and many others, that provide ULIP insurance plan fund options.
An equity fund is preferred amongst the majority of investors. It is a fund wherein the fund is invested in equity securities of different companies. Despite investing in a ULIP or not, the money invested in equity aids in wealth creation. In an equity fund, the policyholder’s money is invested in the top-performing ULIP funds that promise a higher and better return.
But, as this fund is directly proportional to the stock market, the risk possibility in terms of return is higher. Though the risk is higher, they are best for long-term investment. Still, it is way better than any other investment option. In a ULIP policy, the fund is invested in either mid-cap equity, large-cap equity or top 200 funds, etc.
Debt Fund is another option wherein a part of the premium paid in a ULIP policy is invested. A debt fund is a type of mutual fund or a bond fund wherein the investor earns money by investing in fixed-income securities such as money market instruments, corporate debt securities, treasury bills, debentures, fixed-income bonds, Government bonds and Corporate Bonds. In lieu of this, the investor received an interest amount. The risk involved in debt funds is medium to low. So, if your risk-taking capacity is moderate and you are a safe player, go for debt funds.
It is rightly said, ‘Never put all your eggs in one basket’. Thus, in this, the premium amount is distributed in both types of funds, i.e., the risk of losing money cuts down. Moreover, it preserves the benefit of creating long-term wealth for the investor. So, as part of the amount is in equity and part in debt, you have a portfolio wherein your funds are in both high and low risk investment funds. These funds promise a stable return to the policyholder.
Liquid funds are funds wherein the money is invested in liquid money market instruments such as certificates of deposit, treasury bills, etc. These funds facilitate the investor to withdraw his/her money within a short time. The maturity periods of this fund is also shorter, from weeks to months. These funds are also best if the policyholder has a low-risk tolerance.
Now that you are well aware of the best fund options, you can accordingly allocate your premium amount and choose the fund that best suits you.