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Tips To Manage Your ULIP Investment During Market Corrections

Manage ULIP investment during market correction

Tips To Manage Your ULIP Investment During Market Corrections


July 06, 2020

By : Bajaj Allianz Life

The Indian financial sector has evolved rapidly in the last few decades. The customer base and product offerings have grown manifold. Unit-linked insurance plans or ULIP plans have emerged as one of the preferred investment options. ULIPs are financial products that provide dual benefits of insurance and investment. ULIP investments ensure you remain protected by life insurance while your savings grow over time. The premiums paid are invested in the stock or bond markets and the profits are shared with the policyholders.

Every ULIP has a number of underlying equity and debt funds, which are offered to policyholders to choose from. After finalising the fund, units of the fund are assigned to the policyholder. The quantity of the funds depends on the fund value and the quantum of the investment. Policyholders are provided with the freedom to choose from multiple equity funds or debt funds or a combination of both the funds. Investors should choose the funds that align with their life goals. ULIPs are long-term products with maturities ranging between 10 and 15 years. To keep policyholders invested, the regulator has mandated a minimum lock-in period of five years for ULIP investments. However, one always has the option to switch between ULIP funds as per his/her requirements.

Since ULIPs are dual-purpose products, it is important to understand how the investment part works to get an idea of what to do during a market volatility situation. The insurance part forms a protective ring around the policyholder but the investment part is the reason for ULIPs’ popularity.

ULIPs investments are generally spread over multiple funds, which help in minimising risks for the investor. The funds are managed by professional fund managers who ensure proper risk management processes are followed. Managing risks and reducing the chances of negative returns is as important as maximising profits. Wealth creation over several years with manageable risk makes ULIPs a popular investment option for achieving long-term financial goals. ULIPs also provide adequate transparency and flexibility to the policyholders. Investors can monitor the performance of the funds and modify the portfolio allocation accordingly. It is, however, advised to remain invested in ULIPs for the long term.

The premiums paid for a ULIP plan are an efficient way of saving and growing wealth. Depending on the payment schedule, the premiums are paid on a monthly, quarterly, half-yearly or annual basis. The premium for ULIP can be paid as lump sum or at regular intervals. When you remain invested for the long term, the effect of market movement automatically gets averaged out. When markets fluctuates, a higher number of units are allotted during price dips and, the lower number of units get allotted when the prices rise.

Over time, the price of units averages out. One should keep his/her risk profile in mind while choosing an investment fund. People with a shorter maturity period and lower risk tolerance should stick to debt funds. On the other hand, people seeking higher returns may opt for equity funds. If you have a clear financial goal in mind, you can use a ULIP calculator to get an idea of ULIP returns.

If your initial investment does not perform as per your expectation, you always have the fund switching option to modify your portfolio. ULIPs provide the option to switch between funds if you are not satisfied with the existing allocation. A certain number of switches are offered without any transaction cost. The flexibility to switch funds becomes more important during market fluctuations.


Let us look at how the ULIP fund switches help


• Protects investments during market fluctuations

ULIPs are long-term investment products and reacting to short-term market movements is not advisable. It is also not possible to exactly time the markets. However, in certain conditions, one may want to change his/her portfolio allocations to mitigate the effects of an upcoming event. For instance, if the stock market is set to fluctuate due to a severe economic slowdown, one could temporarily park his/her investments in relatively safer debt funds. Similarly, if debt yields rise while equities fall, one can increase the allocation in debt funds. The switching facility can be used in a variety of ways to gain from market fluctuations.

• Helps in investing according to risk appetite

The risk appetite or risk tolerance level of every investor is different. ULIP investments should be made after taking into account your risk appetite. If you are risk-averse, opt for a debt fund and if you are willing to take on higher risk for better returns, you may choose an equity fund. The risk tolerance of an investor is also connected to his/her age. The risk tolerance is high at a young age but reduces, as one gets older. The switching facility can be used to reflect the age of the investor.

• Helps to align the portfolio with life goals

The purpose of ULIP investments is to accumulate wealth to achieve important life goals. However, to achieve the life goal, the investment has to be modified to better reflect the needs of the investor. When one is young, the maturity date is far and the risk tolerance is high. One should invest in equity funds to gain from the high returns provided by equities. As one nears the maturity date, one can shift the bulk of his/her funds into relatively safer debt funds. One can use a ULIP calculator to know about ULIP returns and invest accordingly.




Investors often get worried during market fluctuations. When the entire market crashes, ULIP investments cannot be an exception. However, ULIP investments remain relatively unaffected by market corrections over a long period.

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The above information is for general understanding and is meant to educate the general public at large. The reader will have to verify the facts, law and content with the prevailing tax statutes and seek appropriate professional advice before acting on the basis of the above information.