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5 Go-to Ways of Portfolio Management in ULIPs

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5 Go-to Ways of Portfolio Management in ULIPs
August 04, 2023

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Twins Rhea and Ranbir wanted to grow their savings exponentially. After consulting with their financial advisor, they each invested like amounts in a well-performing ULIP and a couple of balanced mutual funds. Over the next five years, Rhea kept a close eye on her investments while Ranbir pursued other interests.

A review by the same consultant showed that Rhea’s portfolio provided an average return of over 20%, while Ranbir’s hovered around 15-17%.  At a very rudimentary level, this difference is brought on by portfolio management. Let us delve into what this process entails.

What is Portfolio Management?

Portfolio management involves a basic set of principles. By following these, an investor can create and manage their investment portfolio easily. Fundamentally, investors must, at every stage, evaluate their financial goals and responsibilities to understand their risk tolerance levels.

It is both a science, backed by significant research and an art form for creative thinkers. Specifically, investors can:

  • Take informed decisions– 

    Portfolio management tools allow investors to arrive at conclusions based on their financial targets and objectives.

  • Maximise their returns–

    Limited investments, diversification into the right assets and tracking market trends ensure that the return on investment is maximised. 

  • Track Liquidity–

    Circumstances like a pandemic, education or marriage expenses can throw up the need for liquid assets.

  • Avoid Risky Behaviour–

    Volatility in markets is a way of life for an investor. A good mix of financial instruments reduces loss and allows for a quick recovery.

Portfolio Management in ULIPs

It’s easy for investors to feel overwhelmed when learning about portfolio management. After all, who can spend hours looking at individual funds and tracking market ups and downs?

Well, with ULIPs you absolutely do not need to! The biggest advantage of portfolio management in ULIPs is that all your data is available online. Once you log into your insurance provider’s ULIP dashboard, you have:  

  • Complete control over the portfolio
  • Every opportunity to intervene and make strategic modifications

Your strategy will immediately be adopted by your plan. You can quickly change your asset allocation and maximise your returns.

Portfolio ManagementStrategies for Your ULIP

You must understand the four portfolio managementstrategies available for asset management once you purchase a ULIP. Read on to get answers to common questions.

1. Systematic Transfer Strategy

  • When –You want to make a lump-sum investment instead of monthly instalments. 
  • What –This refers to the planned flow of funds from one asset to another. For example, a gradual increase in equity investments from your liquid funds.
  • Why – Buy more units when the markets are low and lesser units when the markets are high. This allows you to reap the benefits of equity with a lower investment.
  • How – All your investments are parked in a liquid fund and the amount is moved every month.

2. Return Protector Strategy

  • When –You want to reduce your risk as you grow older and have access to funds as required.  
  • What –This refers to the planned flow of funds from your equity investments into safer debt funds.
  • Why – Simply put, you keep collecting your gains from your equity funds. This causes a gradual movement from equity to debt, thus reducing risk if equity markets are not performing as expected. 
  • How – Set a threshold for equity fund gains. Once the threshold is crossed, the gains are automatically moved to debt funds.

3. Auto Fund Rebalancing Strategy

  • When –You want to stay invested over a longer period and take advantage of market highs and lows to maximise gains.   
  • What –This refers to the quarterly allocation of units as per a pre-determined ratio of fund distribution between debt and equity units.
  • Why – Primarily, it allows one to take advantage of opportunities due to market fluctuations. While the risk factor remains stable, you can divide your attention between equity and debt funds to ensure wealth creation.
  • How – Set an allocation ratio between debt, equity and liquid funds. Revisit every quarter if required. Gains in equity funds will be liquidated and distributed between debt and liquid funds as per the ratio.

4. Safety Switch Strategy

  • When –Can only be used in the last four years of the policy period and your goal is to protect your accumulated gains.   
  • What –This strategy can be used in combination with the other three mentioned above. It will gradually move all of your gains to liquid funds over four years.
  • Why – This is crucial when you are reaching the end of your policy period and want to protect gains from market fluctuations to prevent any last-minute surprises.
  • How – At the beginning of every year, your portfolio is rebalanced to ensure liquid fund allocation. Gradually increases from 30% to 60%, 90% and finally 100% in the fourth yea

Learning how to manage your portfolio with ULIPs can be easy. By following these tips, you can maximise the returns on your investment.

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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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