Investment Plans 473 views January 24, 2022

Unit-linked Insurance Plans (ULIPs) create wealth for investors through optimized asset allocations. These plans allocate assets in various financial instruments such as stocks, derivatives, bonds, debentures, etc. But the eventual distribution of money would depend on the asset allocation strategy of ULIP funds. Yes, ULIPs come with a list of funds – equity, debt and hybrid – having different asset allocation strategies. These strategies determine greatly the money you earn over time. Let’s spare time to understand these strategies.


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So, What are These Asset Allocation Strategies of ULIPs Called?

ULIPs come with aggressive, conservative, dynamic, balanced asset allocation strategies. Fund managers implement all these strategies on your behalf. They come with market expertise and help you ace the investment challenge using these strategies. Let’s check individually about these strategies and their importance in pursuit of your financial goals.

Aggressive Asset Allocation & How It Helps Increase Your Capital Base

Aggressive asset allocation implies putting the maximum chunk of your investments in equities. The money can go into various types of stocks – large-cap, mid-cap or even small-cap. While large-cap stocks figure among the top 100 according to market capitalization, mid-cap falls next in the list – from Top 101 to 500. The ones from the top 501 are small-cap stocks.

So, if you’ve chosen the equity fund of your ULIP, it will most likely raise your capital significantly over time. Such returns come with high risks too. So. your risk appetite needs to be very high considering this aggressive asset allocation strategy. The reason being a weak market sentiment can lead to a significant decrease in your investment value. But staying patient and continuing to invest smartly would help you make sharp gains later when the market goes up.

The key, however, lies in choosing the right fund based on its performance. And while assessing the performance of an equity fund, don’t fall for the impressive short-term numbers. See how the performance has been for different periods (1-10 years) and choose the one that has remained consistent throughout.

How Does the Conservative Allocation of Assets Work?

The conservative allocation works by putting the maximum assets in debt instruments such as bonds, debentures, money-market securities, etc. It’s not for the ones who like double-digit returns even if there are risks in store. Those with a low-risk appetite and wanting stable income would find this style of asset allocation appealing.

Dynamic Asset Allocation Keeps Your Investments Flexible to Market Changes

While we advise all of you to stay patient while the market undergoes a correction, there’s one dynamic asset allocation strategy that helps adjust the portfolio in line with market cues. So, if the equity market falls, your money would move to debt instruments and bring stability to your investment portfolio. Similarly, if the debt market is not doing that well and equities are surging high, a significant investment portion will go into stocks to generate you big.

Balanced Allocation of Assets

Here, the assets are allocated between equity and debt instruments based on the type of ULIP fund you choose. If it is equity-oriented balanced allocation, the money would be more in equities. In the case of a debt-heavy allocation, the money will be more in bonds, debentures, etc.

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