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What Is Wheel Of Life Portfolio Strategy In A ULIP?

Know what wheel of life ULIP portfolio strategy means

What Is Wheel Of Life Portfolio Strategy In A ULIP?


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June 12, 2019

By : Bajaj Allianz Life

When we are young, our ability to take risks in life is higher but as we grow older we become more and more cautious. When this philosophy is applied to our investment plans, it becomes a great strategy for finding a balance between consistent growth and assured fulfilment of our life goals. Such investment strategies start with a higher weightage towards high return, but riskier investments and then gradually shift towards stable return instruments as the portfolio approaches maturity.

This 'Wheel of Life' portfolio strategy lets you take advantage of the high-return equity markets in the initial stages of your investment cycle. Towards the later stages, your corpus is eventually de-risked by moving your investments towards fixed return instruments. This approach ensures that you will get a steady return on your investment at maturity, even if the equity markets remained unfavourable. It is preferable for those with long-term life goals such as buying a dream home, providing for child's higher education or early retirement.

New age Unit Linked Insurance Plans (ULIPs) offer 'Wheel of Life' portfolio strategy out of various portfolio strategies that can be chosen by the investor. This strategy provides a "years to maturity" based portfolio management. It becomes a strategic tool for stable wealth creation as it gradually allows to shift from equity funds to bond and liquid funds over the policy term based on the outstanding years to maturity. ULIP plans also come with a built-in life insurance cover, so that your family's goals are fulfilled no matter what happens.

Many of the new age ULIPs are highly flexible and allow you to calibrate your portfolio, as per your requirements and risk appetite, over time. When you opt for a Wheel of Life portfolio strategy, say for a 20-year goal, then initially 100% of your investment is allocated to equity funds. As can be seen in the table, the total exposure to equity is higher in the beginning of the goal at 100%. Within that, 30% exposure is to the mid-cap equity fund. But as the term to maturity of the goal reduces, the equity exposure also reduces, and within that -exposure to blue-chip and large-cap/multi-cap equity fund is increased, while exposure to relatively riskier mid-cap equity fund is reduced. Therefore, equity exposure is gradually brought down to 0% before the maturity of the goal, while making 100% allocation is made in bond and liquid funds. The combination of large-cap, mid-cap, mid-cap, bond and liquid funds in your ULIP policy makes sure that your investments are spread evenly between low-risk/return to high-risk/return, thus allowing you to achieve optimal returns. Such ULIP plans not only help in fulfilment of your life goals, but also manages your asset allocation as per your investment horizon and term to maturity.

Asset allocation Mix or Glide Path for a 20 year goal (in %)

Years to Maturity

BlueChip Equity Fund

Large-cap/Multi-cap Equity Funds

Mid-cap Equity Funds

Total Equity Exposure

Bond Fund

Liquid Fund

20

20

50

30

100

0

0

19

30

50

20

100

0

0

18

30

50

20

100

0

0

17

30

50

20

100

0

0

16

30

50

20

100

0

0

15

40

40

15

95

5

0

14

40

40

10

90

10

0

13

40

40

5

85

15

0

12

40

40

0

80

20

0

11

40

35

0

75

25

0

10

40

30

0

70

30

0

9

40

25

0

65

35

0

8

40

20

0

60

40

0

7

40

15

0

55

45

0

6

40

10

0

50

50

0

5

40

0

0

40

55

5

4

30

0

0

30

60

10

3

20

0

0

20

65

15

2

10

0

0

10

70

20

1

0

0

0

0

80

20

A cricket batsman is a wonderful analogy for understanding how the Wheel of Life strategy works. When a batsman comes to the crease, his willingness to take risks is higher, and with some heavy-hitting, he may get to the 90s quickly. However, most of the times you will notice that as he approaches his century he becomes careful - the closer he is to the three-figure mark, the safer he plays. This is exactly how the Wheel of Life portfolio strategy works and protects your corpus from market volatility as your dreams come closer to becoming a reality. Life is a cycle, and so are the markets - they rise, they fall and they rise again. ULIP plans which follow the Wheel of Life portfolio strategy create a well-calibrated balance between risk, growth and investment continuity to help you not only reach your investment goal, you exceed it at times.

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