Investment Plans 175 views November 19, 2021

Investments come in different forms and help achieve different goals of investors. In course of achieving such goals, investments can go through a spell of market downturns reducing the value of the invested capital at that time. The upsurge later can not only help investors recover the lost ground but also yield gains for them. Considering the fluctuation, it is important to assess investment types properly before putting your money in the same. While assessing, we stumbled upon Unit-linked Insurance Plans (ULIPs), which come with a unique combination of life insurance cover and investments. Here also, one may have to go through investment risks. That brings us to a question – do ULIPs suit all types of investors? To know the answer, keep reading the article as we’ll shed light on the same.

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Let’s Talk About ULIPs in General

ULIPs, as briefed earlier, are a type of life insurance plan where your premium serves two purposes – life cover for your dependents in your absence and investment proceeds. When buying ULIPs, you get a list of funds from which you can choose one or more. These are equity, debt and hybrid funds with different characteristics and investment objectives. Whether ULIPs will suit you depends greatly on decoding the funds. Let’s decode the same.

Who Would Love Investing in Equity ULIPs?

Equity funds can help grow your money substantially over time by investing in the high-return proposition of stocks. However, the risk element remains very high when routing the money through these stocks. So, your risk appetite needs to be high when choosing the equity fund. With systematic investments and continued patience, you could achieve your financial goals effectively through equity ULIPs.

Investment risks, however, may not be the same across equities. These funds invest in several stocks – large cap, mid cap, small cap. All these stocks have different risk-return ratios.

Large-cap stocks are of the blue chip companies having strong business fundamentals and high operational efficiency. They are known to have the largest market capitalization. The risk is there but a very calculated one. At the same time, returns may not be rampant but would still be reasonably high over the long term. So, people with a moderate to high-risk appetite would like to invest in these stocks. Mid-cap stocks have market capitalizations just behind their large-cap counterparts. So, both risk and return in mid-cap stocks are higher than that of large-cap stocks. The risk appetite needs to be higher than what’s required in the case of large-cap stocks. Whereas small-cap stocks are of the companies having the least market capitalization. These are primarily new-age companies showing the potential for tremendous growth. So, both risks and returns are very high when investing in these stocks.

Debt ULIPs & Who Would Want to Invest in the Same?

Debt funds of ULIPs invest in bonds, money-market securities and other debt instruments. Both risks and returns are significantly lower when investing in these funds. So, if you have a low-risk appetite and are seeking investments for the short term, choosing debt funds would be the way to go.

Like equity ULIPs, here too, the risk-return ratio could vary depending on the type of debt instruments the money goes into. ULIPs investing mostly in government bonds offer maximum capital safety. Those investing in the debt instruments of companies facing a liquidity crisis could face capital erosion risks. So, do check the liquidity of companies where the debt ULIP fund invests your money. In the policy wording, you could see the distribution of money to be made by the funds. So, check that and decide accordingly.

Are Hybrid Funds Meant for All?

Hybrid funds invest in both equity and debt in a specific proportion to achieve capital appreciation and safety. So, it can suit both aggressive and conservative investors. The allocation between equity and debt is based on the orientation of funds. If the fund is oriented more towards equities, the allocation would be more towards the same. A debt-oriented fund will mean more allocation to debt instruments.

Life Cover is an Icing on the Cake for ULIP Investors

Besides investments, ULIPs offer your family much-needed financial support should you die during the policy term. Check the life cover amount too besides funds for which you pay the premium.

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