ULIP is one of the most popular insurance plans. Since it offers the dual benefit of protection and returns on investment, several people prefer buying ULIP over other insurance policies. While it offers valuable returns, you must monitor the performance regularly. Read on to know the important reasons.
ULIP or Unit Linked Insurance Policy is a market-lined insurance policy that offers protection and opportunity to invest in different funds under a single plan. Although ULIP is primarily an insurance product, several people view it as a safe investment avenue and earn returns. In ULIP, a portion of the premium you pay is invested in different fund options you choose.
It is a known fact that the equity funds is a volatile product, and the returns are directly linked to the market fluctuations. So, if you have invested in equities through ULIP, the market condition can affect the overall performance of the ULIP, and the returns may vary accordingly. The risk of investment in ULIP totally depends on the choice of funds. It is therefore important to keep a regular tab on the performance of the funds. Monitoring the ULIP will help you mitigate the risk. Here are essential reasons why you must monitor the ULIP regularly.
Avoid the risk of losses
Since the returns of the investment in ULIP depends on the choice of funds, you must bear the entire risk. To reduce the risk, you must check the performance of the funds regularly. ULIPs allow you to choose from multiple funds. The aggressive funds invest heavily in equities for maximum returns. Whereas, the conservative funds invest in low-risk financial products like bonds and debt funds to reduce the risk of losses and save the capital. By monitoring the funds, you would know, which funds are performing well and based on your personal financial goals and risk appetite, you can choose the right funds
To benefit from switching options
When you start investing in ULIP, you may have a particular financial goal. But, over a period, as you progress in your profession, financial goals and needs may change. Also, with the growth in income, your risk-taking capacity may change. ULIPs allow you to switch funds, which means you can switch your investment from one fund to the other. Keeping a regular tab on the performance of the various funds will allow you to switch your investment to top performing ULIP funds to maximise the returns. However, you must know that the insurance companies allow a maximum of four switches in one year, so use your switch option wisely.
Accomplish the long-term investment goals
ULIP is a long-term investment product. This is because it comes with a minimum lock-in period of five years. The lock-in period ensures that all your goals are covered as you continue to invest in it. While investing in ULIP, you must not have any immediate goals and surrender the plan in a rush. You must keep a check on the performance of the funds carefully, assess the consequence of any fluctuation and pick the right opportunity to either switch the funds or surrender it.
For example, when the market is low, you can purchase more units at a lower Net Asset Value, and when the market recovers, your fund value will automatically increase, which in turn would increase the returns.
Use dynamic strategies
Having a dynamic ULIP plan in your investment portfolio is a worthy investment since it not only minimises the risk but also maximises the returns. If you have invested in ULIP, make sure that you read and review the updates of the funds regularly and adjust the shuffle the allocation of the funds accordingly. For example, if the equity market is performing well, but at the same time, your financial commitment also increases, your risk capacity may decrease. In such a situation, you can adjust the fund allocation and invest more in debt funds or balanced funds.