One of the most adaptable and best investment plans is provided by unit-linked insurance plans. However, equity fund investments and market-linked returns are what Unit Linked Insurance Plans are renowned for. Do they actually pose a risk for investors?
An asset class is a collection of comparable assets, security, and other instrument types that behave similarly. As a result, it is most likely that all securities belonging to the same asset class will respond to the market similarly.
You have access to a variety of asset classes in which to invest. Volatility, taxation, length, and other characteristics vary among different asset classes. Equity, debt, and cash or liquid funds are the three asset classes that are available for investment in ULIP plans.
What Justifies Investment Risk?
If you're considering investing, you're probably thinking about two things.
- The investment's level of risk
- Investment returns anticipated
The performance of all forms of investments is based on these two factors. The investment will also be advantageous if these are favorable to you.
The majority of experts agree that risk and the return on any investment are positively correlated. The danger also increases as the possible returns on your investment do. The risk-return trade-off is yet another name for this.
ULIP asset classes and fund types
In addition to offering you life insurance, unit-linked insurance plans also allow you the chance to invest. In a diversified portfolio style, ULIPs provide three asset types for investments: equities, debt, and liquid assets.
- Diversified Equity Fund
Equity instruments, such as stocks, are invested in by this kind of asset.
- Long-Term Debt Fund
Although they offer a smaller return than equity, these funds are safer and less volatile.
- Hybrid or balanced fund
These funds, as their name implies, combine debt and equity investments.
- Cash or liquid assets
When you need money, you can quickly access liquid funds.
Your premiums can be distributed among these funds in any ratio for the ULIP Plan. Even 100% of the premium can be devoted to just one fund. Your investment risk in ULIPs can also vary depending on the fund you choose, from very low (100% liquid fund) to high (100% equity).
Who Takes on the ULIP PLan's Investment Risk?
In any formal investment, the investor alone is responsible for investment risk and return. The risk associated with market volatility and any subsequent growth is your responsibility when you invest in ULIP Plans. Only a small fee for the management of the fund may be deducted by the insurer.
How Should Risk Be Managed in ULIP Plans?
Long-term greater growth and steady returns can be obtained by managing risk with ULIPs. Use one of the risk management options in the plan if you are investing in ULIP Plans for the long term and want to ensure that your money grows safely.
Bonus additions and Tax Exemption
Other ULIP elements also help to further lower the risk factor associated with these plans.
- Reward Programs
This is the reward for sticking with an investment for a long time. Up until the time of your premium payment duration, bonus units are added to your fund every fifth year.
- Exemption from Tax
Yes, ULIPs also enable tax savings. With regard to the premium you pay for your ULIP Plan, you are eligible for a deduction of up to Rs 1.5 lakh.
According to the aforementioned tactics, ULIP Plans are a fantastic strategy to increase your money. In addition to this, you can reduce the risk associated with your investment thanks to the advantages it provides.
