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How Risk-Averse Investors Can Invest in Equity?

Traditionally, stock market and equity investments were considered risky investments that only a few experienced investors put money in. For the risk-averse investors, it was all about fixed deposits, and so on.
 

However, as more diverse financial products entered the market, equity investments became accessible to all types of investors, especially inexperienced as well as less-risk investors.
 

Who is a Risk-Averse Investor?
 

Individuals who are hesitant to invest in the market due to the fear of the ups and downs or due to a certain set of financial liabilities are known as risk-averse investors.
 

The risk capacity of an individual is the product of a few factors, such as their financial needs, liabilities, level of savings, stage of life and dependents. If an individual has lower liabilities and loans, no dependents, a steady source of income, and they are in their 20s or 30s, they will have a more risk-taking capacity.
 

However, if someone has a higher number of dependents and monthly EMIs or has an unsteady job, such individuals will not take too many risks with their investments and will want an assured return.
 

For the latter set of individuals, there is a wide range of financial products that help earn long-term equity-linked returns but with due consideration to the risk-taking capacity. Let us have a look:
 

Equity Investment Strategy for Risk-Averse Investors
 

 

  • Long-term staggered investment from a Liquid Fund to Equity Mutual Funds: In this investment method, you park a significant corpus in a liquid fund, and whenever the market goes down, you move a fixed percentage of the corpus to the designated equity fund. If the market keeps falling, you can keep shifting the money to equity investments.

    However, if there is an upturn in the market, you get to benefit from the rupee cost averaging and increase the value of your portfolio. This strategy will reap more rewards with lesser risks if you invest for a longer-term.

  • Systematic Transfer Plan (STP) from a Debt Fund to an Equity Fund: This strategy is similar to the above one; however, instead of a liquid fund, you park your corpus in a debt fund. Debt funds are extremely less-risk avenues and also offer decent returns.

    You can park the corpus in a debt fund for stability and set an STP for regular transfer to an equity plan. This helps you invest through a volatile equity investment market and helps you earn more through rupee cost averaging. However, remember to opt for a longer investment horizon for more and more stable returns.

  • Regular monthly instalments with a Systematic Investment Plan (SIP) into an Equity Fund: This strategy removes the buffer of liquid or debt funds from the above strategies. Here, you invest directly in an equity fund. However, you set a regular amount to be invested every month, irrespective of the market conditions.

    This strategy allows you to benefit from the natural correction of the market in the long term, thereby earning more returns with considerably lesser risks. Also, it inculcates a habit of saving regularly and building wealth over time.

  • Get risk-appropriate equity investment and life cover with a ULIP investment: Individuals buy life insurance to secure their family’s future. One of the popular life insurance avenues that not only provide optimum life cover but also allow risk-averse investors to invest in equity is a Unit Linked Insurance Plan. With ULIPs, you save in the market as per your risk appetite and also safeguard your family’s financial future.

    A ULIP is a life insurance plan that allows investors to earn market-linked returns based on their risk profile. When you invest in a ULIP, a part of your premium is invested in either equity or debt or hybrid funds, based on your preference. ULIPs pay out a maturity benefit, along with regular payouts, to help you build wealth.

    Additionally, your family is secured in case of your untimely demise. The insurer will pay out a predetermined sum assured to your family in case of any eventualities, thereby allowing your loved ones to lead a financially stable life.

The dual benefit of life cover and market-linked returns make ULIPs an optimum solution for anyone wishing to build wealth and secure their family. Let us look at some other benefits of ULIPs that make them an ideal financial solution for all types of investors, especially risk-averse investors, for investing in equity.
 

Benefits of ULIPs for Risk-Averse Investors
 
  • Risk-based Investing and Choice of Funds: Insurers offer a choice of funds - equity, debt, hybrid - with their ULIPs.

  • Fund Switching: Your risk-taking ability changes with every stage of your life. In the early stages of your life, when you have just started your professional career, you can go for more-risky funds and then eventually transition to balanced/hybrid plans as the liabilities increase. As you near your retirement age, start reducing the equity component of your fund and opt for debt-heavy investments for risk-averse management. ULIPs allow you to switch your funds as per your needs.

  • Life Policy and Additional Protection: You buy life insurance for the assured security of your loved ones in your absence. A ULIP allows you to ensure that along with risk-appropriate equity investments. An assured death benefit - more of the fund value or the life policy death benefit - is paid out to your appointed nominee.

    Additionally, as with any life policy, you get a wide range of riders# with a ULIP
     
Conclusion
 

In today’s financial scenario, there are multiple products available to help all types of investors to build wealth through market-linked investments. Among all the options available, ULIPs offer the perfect risk-averse management for less-risk investors through the choice of funds and switching options.
 

If you are a risk-averse investor and looking for seamless equity investments with a life policy, then opt for ULIPs.
 

L&C/Advt/2022/Nov/2794

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Disclaimers

  •  Insurance cover is available under the product.
  •  The products are underwritten by Tata AIA Life Insurance Company Ltd.
  • The plans are not guaranteed issuance plans, and they will be subject to Company’s underwriting and acceptance.
  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.
  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and does not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.
  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.
  • #Riders are not mandatory and are available for a nominal extra cost. For more details on the benefits, premiums and exclusions under the riders please refer to the Rider Brochure or contact our Insurance Advisor or visit our nearest branch office.
  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICYHOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.
  • Past performance is not indicative of future performance.
  • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.
  • Please make your own independent decision after consulting your financial or other professional advisors.