3 Portfolio Creation Strategies to Choose for Your ULIP Plan

Rising inflation and decreasing bank interest rates can significantly affect your savings, especially your retirement corpus, in the long run. Therefore, Unit-Linked Insurance Plans are increasingly becoming popular as they allow investors to benefit from market-linked instruments while protecting their capital.

Unit-Linked Insurance Plan (ULIP)

ULIP provides the dual benefit of life insurance and investment. A part of the premium paid toward a ULIP provides life insurance coverage to the policyholder. The remaining premium component is used to invest in different asset classes to grow the policyholder’s investments.

Different Portfolio Creation Strategies

Investing in ULIPs can reap higher rewards if you adopt a well-planned strategy. You can consider the following portfolio creation strategies to manage your ULIP’s investment component better.

  • Self-Managed Strategy

Self-managed strategy is for those who wish to manage their portfolio by themselves. The strategy allows the policyholders to choose from different available fund options to maximise the potential for high investment returns. The available fund options enable the policyholders to design their risk-return profiles.

For instance, individuals with a high-risk appetite can choose a fund that allocates 75-100 percent of their investment corpus in equities. On the other hand, risk-averse investors can choose funds with maximum allocations in low-risk or secure options like debt or money market instruments.

  • Age-Based Strategy

This strategy involves investment allocation based on the policyholder’s age and risk appetite. Let’s understand this better with the following example,

 

Policyholder’s Age

 (Years)

Fund Allocation as per Risk Appetite (in Percentage)
Aggressive Moderate Conservative
Equity Debt Equity Debt Equity Debt
26-35 70 30 60 40 50 50
36-45 60 40 50 50 40 60
46-50 50 50 40 60 30 70
51 onwards 40 60 30 70 20 80

The above example shows how the percentages of equity and debt in the portfolio should change as per age and risk appetite. While a young and aggressive investor can afford high equity exposure, a conservative investor of the same age is likely to have much lesser equity exposure in the portfolio.

  • Systematic Switching Strategy

If you don’t want to manage your portfolio by yourself, then you can opt for a systematic switching strategy where your portfolio will get equity exposure in a systematic way. This is how it works.

  • Initially, you invest all or some part of your fund in a money market fund.
  • Every month, a pre-defined amount would be redeemed from the money market fund at the applicable unit value.
  • New units will be allocated to the fund with some equity exposure as per your choice.

In other words, your ULIP plan would automatically switch units from the money market fund to your selected fund at the beginning of the policy month.

Click here to know why ULIP should be a part of your investment portfolio?

Which Strategy Is the Best?

You can consider self-managing your portfolio if you are well-versed with the markets and confident in your financial decision-making ability. However, if you are new to investing or don’t have enough time to track your portfolio and make changes regularly, then you should use age-based or systematic switching strategies.

ULIPs offer significant flexibility to the policyholders in deciding how their money should be invested. Investors should use this to their advantage and get the best out of their ULIP plans.

Read more about unit linked insurance plans: https://www.kotaklife.com/online-plans/ulip-plan

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