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Important Funds Every ULIP Investor Must Know

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August 03, 2021

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From the moment we start earning, we all try to find investment opportunities that help us grow our wealth. The idea is to build up funds to fulfil long-term goals like securing our retirement or purchasing a home. There are several investment tools available in the market. One of the most popular ones today is Unit-Linked Insurance Plans. A ULIP plan offers more than just a wealth-building opportunity. It also provides life cover, ensuring 360-degree protection for your family’s financial future.

What Is a ULIP Policy?

A ULIP plan is a unique insurance-cum-investment product. It provides policyholders with life cover while also allowing them to invest their money in various market funds. These investments enable the insured to grow their wealth over time. As an investor, you are in complete control of your money. You can decide what investments to make and can even switch your money around depending on market conditions. Additionally, your ULIP investment and the returns you earn are both tax-free!

Like all other investments, you must monitor your fund performance regularly. Remember, your ULIP can help you build wealth to meet specific financial goals. So, you need to make sure that your investment is on track every few months. You can adjust your ULIP investment by switching your money from one type of fund to another. Before you make any decisions, you must understand how each fund works.

Types of ULIP Funds Every Investor Must Know

1. Equity Funds

Equities have the potential to provide high returns but come with high risks as well. Since the money is invested directly in market instruments, it could end up being quite volatile and dynamic. Young investors who can make up for small losses should opt to invest in equity funds. Even if they face hardships initially, their losses can be offset against higher returns in the future.

With your ULIP policy, you can invest in large-cap, mid-cap or top 200 equity funds.

2. Debt Funds

Here, your money gets invested in corporate and government bonds, treasury bills or debentures. With regards to risk, debt funds are far safer than equities. But, they also provide lower returns. Debt funds are ideal for investors with a low-risk appetite. It’s also a good idea for older investors who do not have a lot of time to make high-risk investments.

3. Balanced or Hybrid Funds

When it comes to investments, you should never put all your eggs in one basket. With hybrid funds, you can enjoy the best of both worlds. You can invest your money in a mix of debt and equity funds and minimise your risk. So, when the market is doing well, your equity funds will provide high returns. But when the market dips, your debt funds will continue to grow your wealth and help you meet your financial goals. As balanced funds offer stable returns, they are typically the most common investment option.

4. Liquid Funds

With liquid funds, your money gets invested in liquid money market instruments like treasury bills or certificates of deposit. Here, you can quickly liquidate your assets in emergencies. The maturity periods for these funds range from a few weeks to months. These investments help you meet your short-term financial goals without exposing you to high-risk scenarios.

Features of a ULIP Policy

Before you decide to invest in a ULIP policy, you must understand the features.

1. Complete Protection

The most important feature of a ULIP plan is that it provides complete financial protection. A portion of the money you invest is used as a life insurance premium to provide you with life cover. So, if anything were to happen to you, your family will receive the payout to keep their finances stable. Additionally, your investment will allow you to build your wealth for a secure financial future.

2. Tax Exemptions

ULIPs fall under the Exempt-Exempt-Exempt or EEE category, making them a great tax-saving tool. You can enjoy deductions on the premiums you pay and the money you invest. Additionally, the returns on your investment will not attract any taxes. Finally, any money that you withdraw from the fund will be completely tax-free.

3. Customisable

One of the best features of a ULIP is that it allows you to customise your investments based on your goals and personal risk appetite.

If you’d like to grow your wealth to meet a long-term goal, then a ULIP policy should be at the top of your list. These investment-cum-insurance plans provide you with all the tools you need to achieve your future dreams.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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