What are the different types of ULIP Investments?

As an investor, you must have come across the term ‘ULIP’ a lot. What exactly is it? It is a financial instrument that has been gaining popularity among investors. Not often do you come across such a product that provides you the opportunity to invest and get life cover in a single policy. It provides other benefits as well to its investors. If you are interested in investing in this policy and want to know more about the types of ULIP investments that are on offer, read on to find out.

What is a ULIP?

A unit linked insurance plan is a type of life insurance policy that provides its investor with the dual benefit of investment and insurance. The premium that you pay is used for both. Investments are done in equity and debt funds. These investments can help you to increase your wealth, especially when invested for a longer duration. The life insurance cover secures your family from any life risk.

What are the types of ULIP investments?

As mentioned earlier, there are two types of funds you can invest in: equity and debt. However, there are different funds that come under them. Listed below are the investment options in ULIPs:

  1. Equity funds

Investing in equity funds basically means investing in the stocks of listed companies that are offered by your insurer. Fund managers will recommend you the stock options of different companies after an extensive research based on factors such as market performance, returns, and value. The funds could be classified as small-cap, mid-cap, or large-cap funds depending on their market value. Equity funds carry a high-risk factor due to nature of their investment; high returns are also expected when one is investing in equity funds.

  1. Fixed income funds

As the name suggest, these funds offer fixed income in returns to the investor. When you opt for bond funds, the money is invested in securities and bonds belonging to the government and corporate bonds. This fund type carries a low-risk factor and offers low to medium returns to their investors. Fixed income bonds should be opted by those who are looking for a long-term investment with steady returns and are looking for low-risk investment options.

  1. Liquid funds

When you opt to invest in cash funds or liquid funds, your money gets invested in investment options known as liquid investment. This includes money market funds, bank deposits and cash deposits. This fund type carries a low risk factor, but also offers lower returns compared to other fund types.

  1. Balanced funds

Balanced funds are the safest investment option in a ULIP, as it invests in both equity and debt funds. Such an investment means that you can get high returns from the equity funds but are also guaranteed fixed and steady returns from debt funds. When you opt for balanced funds, the money gets proportionally invested into equity and debt funds.

How should you select the fund?

 As an investor, you are free to invest in any fund of your liking. However, the investment should match your life goal or requirement. Given below are a few scenarios and the appropriate fund for it:

  1. Investing in this policy with the objective of securing your child’s future in terms of their education and marriage, you should opt for fixed income funds. Due to their low risk factor and fixed income, your child’s future will be more secure and not get compromised in your absence.
  2. When investing with the goal of securing your family’s future, opting for balance funds is a smart choice. With the investment being proportionately balanced, the returns from equity and debt funds will help in securing a good amount for your loved ones and not leave them vulnerable during emergencies in the event of your untimely demise.
  3. Investing with the goal of wealth gain or wealth accumulation, you should go for equity funds. If you have a higher risk appetite and want good returns on your investments, equity fund is the one for you. However, do keep in mind that company stocks react as per market trends and could fluctuate, which could either lead to gain or loss of your investment. Investing a small amount in debt funds along with equity fund could be beneficial in this life goal as well.

These are the types of funds that can invest in ULIPs. You can visit your insurer’s website and use the ULIP calculator to see which fund would be suitable as per your investment.