by Animesh p
Published Wed, May 17th 2017, 15:31 | Finance
Unit Linked Insurance Plans (ULIPs) are a combination of insurance and investment. The product offers the consumer the benefit of both life cover as well as returns from market-based investment funds. Customers pay a certain premium to the insurance company which is monthly or annual premium. Out of this premium, a small portion is reserved for offering life cover to the beneficiary i.e family of the policyholder, if anything unfortunate happens to him/her. The remaining money gets invested in funds such as equity, debt or balanced funds. ULIPs, are structured in a way that the protection element and the returns could be differentiated and hence managed according to one’s specific needs.
ULIP plans offer a series of high, medium and low-risk investments within the same policy. You can choose an appropriate policy depending on your income source, financial goals, and risk appetite. These plans allow you to choose funds as well as the investment ratio based on your financial goals. Just in case your funds are not up to the mark to generate enough returns; you can switch between the funds once you consult your financial expert. There is a flexibility of one-time increase in investment portfolio through top-ups to avail any investment opportunity.
The charge structure, value of the investment and expected IRR is shared with consumers at the time of policy purchase. IRR range between 6% and 10% rate of returns. There are account statement, reports on the investment portfolio and daily NAV reports, that ensure you are aware of the status of your investment at all times. It’s extremely important you keep monitoring your fund performance time-on-time basis to get projected returns in near future.
With the advent of internet facilities, most companies publish latest NAVs on their websites. In case there are unforeseen situations, ULIPs also offer the flexibility of partial withdrawals, wherein after 3 years you can withdraw funds from the Unit Linked account. ULIP plans are ideal for those investors who want to avail the benefit of market linked funds without actually pooling their money in risk-based stock markets.
ULIPs don’t fit in a short-term returns category. Since there are market-based funds you have to time the funds well and wait for the market to propel and produce the desired returns. Once you wait for a couple of years for around 5 to 7 years you can start reaping the benefits from money that you invested in the initial years. A Ulip is a better instrument for people with future plans like education of kids, marriage, purchasing dream property, retirement plan, etc.