Unit Linked Insurance Plans (ULIPs) provide the dual benefit of insurance cover and wealth creation to its investors. Which means policyholders get life cover along with the opportunity to invest in a number of fund options like equity (large-cap and mid-cap), asset allocation (balanced fund), bond, and liquid funds.
Policyholder in a ULIP gets units for the premium invested. While some may choose to invest in equities, others may opt for low risk financial instruments such as government bonds. Moreover, while there is a tax benefit on the premiums paid, the income earned from these investments is also tax-free.
With the benefits of insurance and investment in a single integrated plan, ULIPs help you prepare for several life stages and goals - be it marriage, buying a new home, the birth of a child, funding your children's education, or even helping you through your retirement. Depending on your financial needs and risk appetite, you can choose from a wide variety of available ULIP funds.
Typically categorised by risk and their investment objective, here are some of the top performing ULIP funds:
Equity Funds - large cap and mid cap funds (High Risk)
These ULIPs invest primarily in company stocks and equities. Considered to be a riskier investment, they are best suited for investors with a high risk appetite. As a rule of thumb, it follows a high risk, high reward approach. The main objective here is capital appreciation.
Income, and Bond Funds (Medium Risk)
With funds invested in fixed income instruments, government securities and corporate bonds, these ULIPs offer medium risk and reward.
Balanced or Asset Allocation Funds (Medium to High Risk)
The most stable of the lot, these ULIPs combine equity investment with fixed interest instruments. The total investible amount is distributed between high-risk equities, such as company stocks, and lower-risk, fixed-income instruments.
Cash Funds (Low Risk)
Also known as Money Market Funds or Liquid Funds, investments in these ULIPs will see your funds directed towards low-risk money and short-term market instruments, such as cash and bank deposits, treasury bills and commercial paper.
ULIPs are life insurance products that give the opportunity to earn market-linked returns. As such, they also provide the flexibility to switch and redirect the investment funds based on the market conditions.
While switching involves shifting your corpus from one fund to another available fund, redirection is the revised allocation of future premiums towards the various fund options available.
In ULIPs, you can combat market fluctuations by moving your money between equity and debt funds. You can also choose your investments based on your changing risk-appetite and financial goals. With the many benefits they offer, ULIPs have become an integral part of one's financial planning and portfolio in recent years.