Unit Linked Insurance Plans are a great way to get insurance and create wealth at the same time. As an investment tool, a ULIP has many great features that are often overlooked. These features can really help you maximize your investment growth and manage the risk associated with your investment.
Let us look at three methods using which you can increase the growth of your investment in a ULIP.
1) Start an SIP regardless of your mode of investment
It is very well known that an SIP or Systematic Investment Plan is the best way to invest in equity funds. Regular investment of a fixed amount not only gives you the benefit of Rupee Cost Averaging, but also lowers the risk of investment.
Thus it is imperative that you buy a ULIP plan and use SIP as your investment mode. In case you prefer to invest a lump sum amount every year, then too you can get the benefit of SIP by using the Systematic Transfer option in ULIP, which effectively converts your investment into an SIP.
2) Manage Portfolio Risk Automatically
Even though SIP in ULIP will minimize your equity risk, as your portfolio grows, so will the risk associated with it. After all, equity investment can never be completely risk-free.
For example, if you invested an amount and allocated 50% in equity and 50% in debt funds, you’ll feel that your risk factor is balanced. However, over a period of time the portfolio risk will change according to the growth of your investment.
If the debt fund component performed better, the total debt fund value of your portfolio will be greater than the equity aspect. Hence your overall portfolio risk will be lower.
On the other hand, if the equity component fared better, the total equity fund value will be higher, and hence the overall portfolio risk will increase.
So if you want to maintain a 50-50 ratio of your debt and equity funds, you will need to constantly reallocate your funds and this can become tedious.
That is why ULIP offers Automatic Portfolio Rebalancing features. These features can be used to maintain your portfolio risk automatically according to the performance of your invested funds.
– Return Protection: This feature allows you to skim off the returns from equity markets and invest it in debt funds.
– Auto Fund Rebalancing: Your ULIP will rebalance your fund to 50:50 once every three months, by reallocating the higher valued fund to the lower valued one.
3) Systematic Withdrawal
Experts will always tell you to invest in a disciplined manner. That is why Systematic Investment Plans are so popular. But another factor to take into account is systematic withdrawal. You must always follow a similar discipline in withdrawing your funds as well. Systematic withdrawal allows you to automatically withdraw funds from equity funds and move them to a safer, low risk alternative within the same ULIP plan. This allows you to make the most of a good market position, and not put any risk to your returns.
This feature can also be used to build a retirement corpus. As you keep gaining profits, it is always a good idea to move the bulk of your profits to a fixed income scheme to keep it safe.