A Unit Linked Investment Plan is a journey with dual benefits to your financial goals. In one way it secures the future of your loved ones with insurance and in another way it lets you grow your wealth over a period of time. This financial tool is primarily designed for long term savings that can also be used in the short term as it offers the option to partially withdraw funds after a lock-in period of 5 years. This gives you adequate liquidity in times of urgent need. Moreover, ULIP comes under 80C and offers tax^* benefits up to ₹1.5 Lakh against the premiums paid.
 

It is evident that a ULIP can provide you with many advantages over time. But there are some ways to enhance these benefits further. Read on to know more.
 

1. Ensure optimal asset selection and allocation with premium redirection.

   
   To know what premium redirection in ULIP is, you must first know that one of the biggest advantages of a ULIP is that it allows you to choose between different fund groups. You can invest in debt, equity, or balanced funds. This provides you with the opportunity to diversify your portfolio. A ULIP also allows you to switch between funds multiple times a year with premium redirection. So, depending on how your investment is performing in the market, you can get units of another fund with your future premiums.
    

2. Invest as per your risk appetite.

   
   Some investors like to take risks while other investors like to stick to steady returns with as little risk involved as possible. Fortunately, a ULIP caters to both these types of investors. As stated in the previous point, a ULIP lets you choose a fund of your choice and then invest accordingly. So, you can pick a fund as per your risk tolerance. You can also pick a combination of funds and make changes to your portfolio as and when you like. Since your risk appetite is likely to differ at different stages in your life, a ULIP can offer you the flexibility to incorporate this in your investment. When you can afford to take more risk, you can opt for equity, and opt for the best ULIP plan with more returns. However, when you want to turn away from risk, you can consider selecting debt funds. Balanced funds, on the other hand, offer a balance between debt and equity funds, with medium risk. Thus, which ULIP plan is better for you depends on your risk appetite.
    

3. Select a long policy term.

   
   ULIPs can be used as short-term investments in dire circumstances, but they are primarily long-term investment products. While you can always take out a partial withdrawal after the 5-year lock-in period is over, it would be more beneficial to wait and let the power of compounding do its work on your money to ensure enhanced ULIP plan returns. The longer you stay invested for, more can be your earnings in the end. Therefore, in order to get better returns, it helps to stay invested for at least 10 to 15 years.
    

4. Change your funds as per your goals.

   
   Most people invest in a ULIP with a distinct goal in mind. This could be to cover the costs of education, marriage, travel, or even retirement. Hence, at the beginning of your term, it helps to consider equity funds. These funds come with risk, but they also offer enhanced reward. If you start investing at a young age, start with more return ULIP plans. The risk component can be overruled by the fact that you have a long term ahead of you to counter the losses (if any). However, as you move closer to the timeline of your goal, it may be advised to switch to less-risk funds with low ULIP rate of return, such as a balanced or debt fund. This will ensure steady gains and your money will be safe from any market volatility that can bring an unfavourable result at the end of your journey.
    

5. Pay attention to the hidden charges.

   
   It is important to know what mortality charges in ULIP is, along with other hidden costs like administration fee, fund management fee, surrender fee, etc. These costs can reduce the value of your returns. However, some insurers may pay this back as loyalty additions. Make sure you are acquainted with these charges and pick a plan with minimal extra costs.
    

6. Avoid taking out partial withdrawals.

   
   It helps to let your money grow without accessing it. Touching your fund mid-way can interfere with the growth of your money. Moreover, it also affects your discipline. For this very reason, financial experts recommend having an emergency account to cover the costs of any unexpected expenses that may come up unannounced. This ensures that your
   investments are not interrupted, and you are able to create a large corpus.
    

7. Think in your family’s interest

   
   When you save in a life insurance plan, your nominee is entitled to receive a death benefit also known as the sum assured in the unfortunate event of your demise. In a ULIP, your nominee receives the sum assured or the fund value whichever is more. Therefore, your aim should always be to increase the value of your fund so that your loved ones are protected and financially secured. By assessing the changes in the market and switching between funds at the right time, you can increase your fund’s value. This benefits your grieving family and also adds to your net worth if you survive the term.
    

Final words
 

As far as investment options are concerned, many investors ponder over mutual funds vs ULIP returns. However, a ULIP is a suitable product for someone who wants insurance and investment under the same plan. You can always consult a ULIP vs mutual fund calculator to gauge which one is suitable for you. But with the tips given above and the twin benefits of ULIPs, you can go ahead and invest in a ULIP without overthinking.
 

L&C/Advt/2023/Feb/0705