A unit-linked insurance plan (ULIP) is an insurance product that provides the benefits of life cover as well as investment. One of the most important factors that you need to keep in mind while investing in a ULIP is asset allocation.
In this article, we will explain the benefits of the right asset allocation.
A ULIP plan provides the benefits of investment and life cover. When a person purchases a ULIP, a part of the premium is allocated for life cover and the other part is used for investments. The life cover can provide the policyholder’s family with financial assistance in case the insured person passes away untimely. The investments can provide high returns to the policyholder.
A policyholder can choose the investment options based on his/her risk appetite.For instance, if a person has a high-risk appetite, then he/she can consider investing in equity funds. Therefore, correct asset allocation as per the policyholder’s investment objective is crucial.
Asset allocation is the way that your money is allocated across different investment instruments, such as equity, debt, etc. It is done to ensure you meet your investment goals. By allocating assets, you try to deal with the risk while achieving your objectives. Thus, right asset allocation of your funds is important to meet investment goals.
Benefits of Right Asset Allocation
- Flexibility to Choose Fund Options
There are various fund options in ULIPs, such as equity and debt funds. Before investing, you can check the risk and returns of the fund. You can also find out how much money is allocated in a fund. Hence, you can choose the fund options based on your investment objective.
- Good Returns
If you don’t allocate your assets correctly, then you might not earn good returns. Therefore, it will become difficult for you to achieve your investment goals. However, by correctly allocating investments, it will be easy for you to determine the returns. Therefore, you can earn higher returns.
- Your Investment Profile Will Meet Your Risk Appetite
There are investors who don’t want to take a lot of risk. However, there are many who want to earn higher returns. Therefore, they take the risk to get better returns.
Asset allocation makes it easy for you to choose investment products that suit your risk profile. Therefore, you can conveniently build an investment profile that meets your risk appetite.
- It Can Provide Sum Assured
While ULIPs can offer investment returns, they also offer life cover. When a policyholder buys a ULIP, the insurer allocates a part of the premium for life cover. The insurance company can provide a sum assured to the family of the policyholder in case of an unfortunate event, such as death.
- Flexibility to Switch Funds
When you choose a ULIP, you have the option to switch funds a few times during the year. Therefore, you can use this option to change your asset allocation. This can allow you to earn higher returns.