If you’re looking for a versatile and flexible insurance cum investment option that can give you returns and protect your family financially, then the Unit-Linked Insurance Plan (ULIP) is what you need. Since a ULIP invests in market-linked instruments, the potential to earn returns is high along with associated risk. That’s not all. Armed with a few tips, there are chances of getting better ULIP returns as well. Interested to know more? Read on to find out how you can improve the return generation potential of your ULIP.
What is a ULIP?
As you’ve already seen above, a Unit-Linked Insurance Plan, also known as a ULIP, is an insurance cum investment option. It intelligently combines two aspects - insurance and investment. Now, when you purchase a ULIP from an insurance provider, you not only receive a life cover of a predetermined sum of money but also get the opportunity to invest the premiums that you pay in market-linked funds of your choice.
The life cover that you receive will act as a protective shield that keeps your family financially secure if something were to happen to you. On the other hand, the investments that you make in market-linked funds work towards providing you with ULIP returns that may outperform more traditional investment options.
How to get better returns on ULIPs?
Now that we’ve answered the question, ‘What is a ULIP?’, let’s get to the main part of the article. Although the returns generated by a Unit-Linked Insurance Plan is predominantly dependent on the movement of the markets, there are certain steps that you can follow to ensure that it their return generating potential is improved b. Here’s a quick look at five such tips.
1. Invest early
This is one of the tips that you can follow to enhance the return generation potential of a ULIP. Investing in one as early as possible gives you enough time to build a sizable corpus in the long run.
Also, considering the fact that a Unit-Linked Insurance Plan utilizes the power of compounding, which is essentially the reinvestment of the returns that you generate, the corpus that you can build over a period of time becomes quite substantial.
And finally, the risk appetite of younger investors tends to be much higher. So, when you invest early in a ULIP, you can direct a major portion of your investment towards high-risk options like equity funds, which have a greater chance of producing high returns along with higher risk.
2. Stay invested for the long-term
Another major mistake that investors tend to make that can diminish their returns is exiting a Unit-Linked Insurance Plan early. A ULIP has a lock-in period of 5 years, during which you are not allowed to make withdrawals. A large number of investors choose to discontinue investing in ULIPs as soon as the lock-in period ends.
Such a move, however, is not preferable since it can reduce the return-generating potential of the plan. Since a ULIP invests in market-linked funds, it performs well in the long term. Also, when you stay invested for a significantly long period of time, you can also nullify the effects of market volatility, helping you get better returns.
3. Switch funds to counter market volatility
The financial markets can be very unpredictable. During your period of investment, you may have to face tough market conditions that can test your patience. You may even feel the urge to withdraw funds either partially or fully.
However, when you're faced with such testing situations, the key is to consider remaining invested. Instead of surrendering your ULIP, you can look towards switching funds subject to policy terms & conditions. Many Unit-Linked Insurance Plans allow you to switch between the market-linked funds that you wish to invest in.
For instance, if you find that the equity market is going through a bearish phase, you can choose to temporarily switch from equity funds to debt funds till the market stabilizes again. And once the equity market becomes bullish again, you can choose to switch back to equity funds. Fund switching is one of the ways by which you can counter market volatility in a ULIP.
4. Be disciplined in your approach
If you ever hope to get better returns from a Unit-Linked Insurance Plan, it is absolutely crucial for you to pay the premiums regularly and on time without missing even a single payment. Unwavering financial discipline till the end of the ULIP tenure may help you generate market-linked returns. Failing to make ULIP premium payments can not only lead to you being unprotected but can also reduce your corpus.
5. Use the top-up facility
If you find that you have excess funds lying unused or that you’ve received an unexpected windfall gain, you can look towards using the top-up facility of your ULIP. Under the top-up option, you can choose to make additional lump-sum premium payments, which would go towards your investment corpus. Making top-ups to your Unit-Linked Insurance Plan as and when you’re in possession of excess unused funds can not only increase the value of your investments but may also have the potential to generate higher returns in the long run.
There you have it. 5 tips that you may consider to make sure that your ULIP plan works better for you. Here’s something that you should know. The terms and conditions surrounding the top-up facility and fund switching tend to be different from one Unit-Linked Insurance Plan to another. So, before using any of these two options, always make sure that you read through the terms and conditions of the plan thoroughly for more clarity.