aining towards the investment. The amount receivable on the maturity of the plan is considered as ULIP returns. The policyholder will receive either the sum assured or the fund value, or a combination of both. Hence, a good combination of funds should be allocated to the assets, which would ensure considerable returns & fulfil financial objectives. It involves investment of funds in debt, equity, or both, depending upon the risk tolerance level & your financial objectives, making it an ideal investment option. It offers a flexible option to switch between funds at any time during the policy tenure.
Key Factors to maximise ULIP returns
Now, when you understand the concept what is ULIP, let us know some tips that should be considered to let you maximise ULIP returns:
Stay invested & benefit from compounding
ULIPs come with a lock-in period of 5 years, which helps investors achieve long-term investment objectives. Additionally, it is advised to remain invested for a longer duration to take advantage of the power of compounding & earning returns on returns. Compounding also helps mitigate the market fluctuations if funds remain invested for a longer duration, thus increasing the returns.
Maintain Consistent & Disciplined Investment
One should make consistent payments towards the premium to build a considerable corpus, hence maximising the returns. It is also advised to set up an automatic payment mode to avoid any misses in premium payments. Instilling financial discipline helps gain the advantages of long-term growth potential from the ULIP plan.
Analyse risk appetite for equity & debt investment
Where equity funds, on one hand, offer high returns & are quite risky, debts, on the other hand, offer stable & assured returns with low risk. Under ULIP, it offers investor with an option to allocate their funds depending on their risk tolerance level.
Pay premiums on time.
ULIPs come with a lock-in period of 5 years, during which it is not allowed to withdraw funds or make delayed premium payments. In case you miss a payment, the funds are transferred to a discontinued fund, & fees are charged.
Regularly Review Your Portfolio
It requires consistency in reviewing the portfolio in terms of the performance of funds & looking for growth opportunities. It involves continuous monitoring & then making necessary changes in terms of switching between the funds by reallocating the investments to enhance the returns.
Leverage Tax Benefits
The premium paid towards the plan is eligible for a tax deduction u/s 80C of the Income Tax Act, 1961, up to INR 1.5 lakhs annually. The maturity proceeds along with death benefits are exempt from tax u/s 10(10D) of the Income Tax Act.
Avoid partial withdrawals
ULIPs allow their policyholders to withdraw their funds partially in case of need, but after remaining invested for 5 years. This means partial withdrawal under ULIPs is allowed, but once the lock-in period of 5years has been met. In case any amount is withdrawn before the end of the lock-in period, the maturity payout will not be received. Also, the potential growth on your investment amount that could have been achieved with the power of compounding will also be missed.
Optimised asset allocation
An investor should understand the different fund options available, such as debt funds, equity funds, or balanced funds, to maximise returns. They should select those fund options that best suit their financial objectives, risk tolerance level & investment horizon. ULIP allow the policyholders to switch between the funds to get an optimised allocation of funds. It is always advised to diversify your investment in multiple funds to gain high returns & get less market exposure. This optimisation of assets also helps calculate the risk-to-return ratio of the existing portfolio.
Let us take an example:
Mr X, a 34-year-old, purchased a ULIP for a policy tenure of 30 years by investing 100% in equity. But after around 5 to 7 years, when his kids were born, & he had financial responsibilities, he wanted to reduce the risk exposure linked with equity. Now, by switching from equity to debt, he can better optimise his asset allocation & get increased returns.
Align investment with long-term goals.
While looking for the Best ULIP Plan in India, one considers wealth creation & fulfilment of financial objectives, such as education, marriage, purchase of property, retirement, etc. While looking for long-term investment avenues, financial objectives play an important role in assessing the risk tolerance level of an investor. For instance, under the ULIP child education plan, switching between the funds is required periodically to build the corpus funds, to well align the investments with future financial objectives.
Invest with a disciplined approach.
With a lock-in period of 5 years, it helps investors inculcate a habit of disciplined savings & take advantage of the power of compounding by remaining invested for a longer duration. Additionally, some of the insurance companies also offer additional loyalty benefits to their investors, which involve a refund of all the charges levied at the time the plan was purchased. Examples of such charges are fund management charges, policy administration charges, mortality charges, surrender charges, etc.
Portfolio Rebalancing
It is always advised to review & monitor the performance of your funds regularly to keep an eye on the profits & gains. As the results may be uncertain, regularly reviewing & rebalancing the allocation of funds helps align your investments with your financial objectives.
Conclusion
Having a better understanding of returns of ULIP & factors that may impact, definitely helps in making informed decisions. To maximise the ULIP returns & maintain a financially secured future, it is advised to select an appropriate plan, remain invested for a longer duration, & assess the associated fees & charges. Additionally, it is advised to compare the ULIP returns & other investment avenues available to evaluate the fund’s performance against your financial goals.
