by Wealth creation drives us toward investment, savings, and smarter money management. It is in our natures to desire a better life and look for an upgrade from where we stand today. How else do you justify working harder, making your family’s dreams come true? To achieve all this, we begin investing. Investing helps us build a portfolio that churns out wealth relative to the portfolio type, amount invested, and the risk taken.
A folio is a folder or a base of the various investment instruments you have engaged. It can be equities, mutual funds, debt instruments, NCDs, bonds, PPF, FDs, and more. ULIP is one such instrument. But what is ULIP? ULIP stands for Unit Linked Insurance Plan. In comparison to other instruments, what is ULIP does differently is that it is a tool providing dual benefits. The premium that you pay for a ULIP policy provides you with insurance as well as a part of that amount paid goes toward investments in an asset class of your choice. They can be a debt or an equity-based instrument of your choice.
Let us get a more clear understanding on what is ULIP and how ULIPs work:
- ULIP is your instrument that takes away the decision making and management of having an insurance policy and other instruments. It contains an insurance portion that covers your life, and an investment portion which operates like a mutual fund.
- What is ULIP is that the investment portion of the sum that you pay is treated like an investment in mutual funds. You get an NAV, which helps you determine the returns that you have earned. Just like a mutual fund, you get to choose the type of fund that you want. The fund can be hybrid or debt or just equity. Your investment can further be into large-cap or mid-cap or even small-cap funds based on your needs, risk appetite, and the allocation you want to choose.
- An investment in what is ULIP requires you to understand how long term investments work. You should avoid investing in a ULIP if you want instant returns. ULIPs are for investors with a longer horizon, patience, and the right mix of risk appetite to afford the investment.
- A return period on the funds that you have invested through what is ULIP is at least 5 years. Otherwise, you do not enjoy the returns and may even waste your money by canceling the policy in the short term.
- You can conduct your independent research to understand what is ULIP better. You can look at its historic performance, talk to experts, and judge how it can perform. No market-linked investment performs the same or can predict with absolute certainty how much returns it can provide to you. However, an expert can help you become aware of the key-metrics to judge, choices to make, and compare better.
This will help you put your money where you can get secure returns or terms that favor your risk capacity, your investment budgets, and your tenure of investments.
