Most of us have long-term life goals that require substantial wealth creation. While there are many asset classes available to investors these days, but choosing the right ones, or the right mix for your portfolio, can be difficult. Meanwhile, over-reliance on one or two asset classes can mean that you miss out on a number of potential standout investment opportunities.
In such a situation, one very tactical and efficient way of asset allocation is adopting an investment style where the three primary asset classes - stocks, bonds, and cash - are actively balanced and adjusted by the investor with the intention of maximizing portfolio returns and minimizing risk. At the same time, it is also essential to ensure investment continuity to protect your family and their life goals from unexpected events. Unit Linked Insurance Plans (ULIPs) are one such investment plan which offers market-linked returns, the flexibility of asset allocation, tax savings and protection for your family's financial stability in one comprehensive package. Many of the new age ULIP plans also allow you to choose between various portfolio strategies. If you are someone who has their fingers on the pulse of the markets and wants to have complete control over how your money is invested, then Investor Selectable Portfolio Strategy is one of the preferred option for you.
What is the Investor Selectable Portfolio Strategy in a ULIP?
Under the Investor Selectable Portfolio Strategy, you will have the option to choose the ULIP funds in which you want to invest and are allowed to switch your allocations. You can either invest fully in any one fund or allocate your regular premium and top-up premium among eight funds in a proportion that suits your investment needs and risk appetite. These eight ULIP funds have varying degrees of risk associated with them - from very high risk to low risk - with portfolio allocation distributed between stocks, bonds, bank deposits, and other money market instruments. You can make these re-appropriations as much as you want, without any additional charges and taxation impact. In fact, the tax saving benefits of ULIPs go much beyond zero tax on switching your asset allocation. For starters, the premiums paid towards ULIPs, up to a maximum limit of Rs. 1.5 Lakh, are allowed for deduction under section 80C of the Income Tax Act, 1961, subject to provisions stated therein. The income from ULIPs at the time of maturity, is also tax-free under section 10(10D) of the Income Tax Act 1961, subject to the provisions stated therein. In addition, ULIPs also do not attract tax on long-term capital gains from stocks and equity funds, introduced by the Government last year. This feature allows you to use ULIPs for long-term life goals planning in a tax-efficient manner.
Investor Selectable portfolio strategy focuses primarily on asset allocation according to your risk profile, while allowing you to take advantage of favourable market movements and protect your gains from volatility. Moreover, if you want to make a partial withdrawal, you can choose the fund from which you want to take the payout.
One of the first steps towards the fulfilment of your life goals is understanding your requirements and adopting a prudent investment strategy. The Investor Selectable Portfolio Strategy allows you to have granular control over how your money is invested and gain desired outcomes. This strategy works on the premise that different asset classes perform differently under certain market conditions and diversification allows you to hedge your portfolio performance against risk. One way to go about it is to start with higher allocation towards riskier asset classes and then gradually shifting your portfolio in favour of fixed income instrument as you reach closer to your life goal. You must regularly review and rebalance the asset allocation mix to ensure that you stay on course to fulfil your dreams. Your asset allocation can better reflect your life stage and needs if you do it yourself. With new age ULIPs, you are also able to make adjustments to your investment plan easily to better accommodate changing needs and protect your investments at the same time.