In this article, you will get some tips on how to invest money in ULIPs to get optimum returns and learn about important details such as:
- How is the premium invested in multiple funds?
- How NAV is calculated and fund value is generated?
- Tax benefits of ULIP investment.
You can always leave the fund switching work to the ULIP’s fund manager, in case you are not comfortable with it. You can also consult a subject matter expert who can help you with the same.
Where does my ULIP premium go?
When you invest in a ULIP plan, the premiums you pay are invested in variety of funds opted by you as available within the respective product after relevant deductions have been made. These ULIP plans also provide you with a Life Cover Let’s understand this with an example.
Assume that you are paying a monthly ULIP premium of Rs. 100. Out of this Rs. 100, Rs. 5 is deducted as ULIP charges and Rs. 35 is invested for insurance cover. The remaining Rs. 60 (Rs. 100 – (5 + 35) = Rs. 60) is invested on various funds as selected by the investor. When this amount is pooled together from all other investors, it is called a Unit Fund.
Typically, insurance companies provide investors with the option to choose from funds available with the product or from investment strategies wherein few strategies allow investors to manage his/her own funds or let the insurer manages funds as per the needs of the investor.