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What Is Trigger Based Portfolio Strategy In A ULIP?

Know what trigger-based portfolio strategy means in a ULIP

What Is Trigger Based Portfolio Strategy In A ULIP?


July 09, 2019

By : Bajaj Allianz Life

The first step towards wealth creation for the fulfilment of your life goals is making investments. Over time, what really drives your wealth is how you invest. Hence it is important to adopt a prudent portfolio strategy that is fine-tuned to your goals and risk appetite. While there are many approaches to building your portfolio, the most successful ones usually have the same consistent four elements: effective diversification, active allocations, tax efficiencies and protection.

Effective diversification essentially means not putting all your eggs in one basket i.e., your portfolio should be well-diversified between various asset classes to mitigate the impact of market volatility. Making active allocations in line with market movements to secure your gains and choosing products which bring tax savings are also essential components of intelligent investment planning. Also, it is most likely that you are investing to achieve the long-term life goals which are closely associated with your loved ones. In such situations, it is ideal to ensure financial protection through life insurance so that your family’s goals are realized even in your absence. Unit Linked Insurance Plans (ULIPs) are one such product which covers all four bases of a successful portfolio strategy, in addition to providing market-linked returns. 

New age ULIP Plans allow you to choose between various portfolio strategies that are suited to your specific goals. Among the many such strategies, the 'trigger-based portfolio strategy' is a particularly popular one due to its focus on asset diversification and allocation in a way that capitalizes on secured gains.

For an investor, maintaining a pre-defined asset allocation is a dynamic process and is a function of constantly changing markets. The ULIP trigger-based portfolio investment strategy enables you to take advantage of substantial equity market swings and invest on the principle of "buy low, sell high." It also allows you to protect gains made from equity market investments from any future equity market volatility, in a systematic manner. In most cases, you can opt for this investment strategy only at the commencement of the ULIP Policy

Initially, under this strategy, your investments will be distributed between an equity-oriented growth fund and a debt-oriented fund - often in a 75%:25% proportion. This may ensure that portfolio risk is diversified according to risk rewards strategy. This fund allocation may subsequently get altered in-line with the market movements, and when that happens, your portfolio manager will rebalance or re-allocate funds in the portfolio based on a pre-defined trigger event.

A trigger event is generally defined as a 15% upward movement in the unit price of the equity fund since the previous rebalancing or from the unit price at inception, whichever is later. On such occurrences, any value of the equity fund that is in excess of three times the debt or bond fund value is considered as gains. These gains are then transferred to a liquid fund - by the redemption of appropriate units from the equity fund to make sure that they are capitalized and protected from future equity market fluctuations while maintaining the asset allocation between equity and bond fund at 75%:25%.

As investors, we all know that moving up and down is the inevitable function of markets. It is times like these we should not get swayed by market movements and make sure our asset allocation still meets the risk profile. Given that investing is mostly for the long term, it is necessary to protect the gains one has made, capitalize on them while maintaining a sound asset allocation strategy. Investing in ULIPs which follow the trigger-based portfolio strategy are a simple and effective way to reach your life goals faster - by capitalizing on favourable market movements.

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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.