21st May 2024

Just Bought A ULIP? Learn How to Manage It

The unit linked insurance plans (ULIPs) have been quite a popular choice among the up and coming investors in India. It is one of the top-most investment choices for first-time investors as well. 

However, much like any other investments, ULIPs need to be managed appropriately to yield reasonable returns. If you have just bought a ULIP investment, learn to manage it with us.

What is ULIP policy

Unit Linked Insurance Plan or ULIP offers dual benefits to its investors – life insurance cover and investment. A part of the premiums paid towards the policy is used for life insurance coverage; whereas the remaining amount is invested in funds of your choice.

Those who have bought this policy also benefit from ULIP tax benefits. The premiums paid can be claimed for tax deductions under Section 80C of the old tax regime. The death and maturity benefits received are tax-free under Section 10(10D) of the Income Tax Act, 1961. ULIPs are also exempt from Long Term Capital Gain (LTCG) tax.

However, if you want to yield high ULIP returns, you should know how to manage the policy. And here’s how you can do that –

  • Determine your future goals

No investment strategy is useful if you do not know your future financial goals. Hence, it is wise first to decide your objectives and then look for an investment to help you accomplish it. ULIPs are goal-based investments. Therefore, whether you want to save for your child’s future, to buy a new car/house, or your retirement – you need to have certain goals in place before investing in a ULIP policy.

Moreover, it is recommended to invest heavily in equity funds for a long time at the beginning of the policy. That way, you can earn reasonable returns over a period. Later, as the policy maturity date nears, you can switch to debt funds that impose less risk to the returns generated. By the end of the policy term, you will have a strong corpus left in your account.

  • Evaluate your risk appetite

Again, when investing, it is important to determine your risk appetite. People who are willing to take the market-linked risk can invest in equity-oriented funds as they impose a high risk. For those with a low-risk appetite can invest in debt or hybrid funds to play it safe. 

Also, keep evaluating your investment portfolio repeatedly to keep track of the returns generated. That way, you can make necessary switches to yield high future returns or lower the risk involved, whichever you think is essential now.

  • Evaluate the ULIP charges

The insurer deducts a predetermined amount from your ULIP premiums every month. This amount is listed under the ULIP charges such as the mortality charge, premium allocation charge, policy administration charge, fund management charge, and so on.

The amount is decided and deducted as per the Insurance Regulatory and Development Authority of India (IRDAI) norms. Calculating the applicable ULIP charges when investing will help you understand how your money is being used. Further, it will help you determine whether ULIPs are a good investment choice for you or not.

The Bottom Line

Once you learn how to manage your ULIP investment on your own, you will be able to derive huge benefits from the policy. On the other hand, you can seek help from a fund manager who ideally is appointed to do the same job. 

When it comes to making a sound financial program, it is important to find a balance between insurance and investment. While most people choose to invest in separate insurance and investment plans, first-time investors can consider a policy that provides both under a single plan.