Essential Tips for Increasing ULIP Returns

You have invested in a ULIP plan, but are you taking the proper steps to scale up your returns? You should regularly track your investments and the market conditions to maximize your ULIP's returns. You should also do your homework on market trends, stock movements, etc. ULIPs help you get a foot in the door in terms of beginning to invest in market-linked instruments, and that too in an affordable manner, but how you fare after that is partially up to you. Let us have an overview of ULIPs and look at some tips to maximize their returns.

A basic guide to Unit-Linked Insurance Plans

A ULIP plan is basically a life insurance policy that combines insurance and investment. These plans offer life coverage for a specific tenure while enabling policyholders to invest in market-linked instruments like liquid, equity, debt, and hybrid funds. 

You can invest in the funds of your choice and switch between them periodically. These investments have 5-year lock-in periods and offer tax deductions up to Rs. 1.5 lakh on the premium payments (under Section 80C of the Income Tax Act, 1961). In case of the policyholder's unfortunate demise within the policy tenure, the sum assured or fund value (whichever is more) is paid out to their nominee. This payout is also exempt from taxation (under Section 10D). You may use a ULIP calculator for computing your expected returns over a certain period. 

Tips on increasing your ULIP returns

Now that you are interested in scaling up your returns from ULIP plans, here are a few steps that you can take: 

• Remain invested for the long haul -  ULIPs necessitate staying invested for the long haul to build a future corpus and earn attractive returns. If you invest for a decade or more, you will automatically benefit from higher returns through the power of compounding. You should remember that ULIPs have 5-year lock-in periods during which you cannot access your funds. Even after this period ends, it is advisable not to make any partial withdrawals to maintain a sizeable corpus.

• Choose your funds wisely - All ULIP funds have varying attributes. For example, equity funds offer higher returns but also come with higher risks. Debt funds have comparatively lower risks and stable returns (usually lower than equity funds). There are balanced funds too which have varying allocations between debt and equity. You should understand the risks and choose a combination of funds based on your risk appetite. 

• Optimization of allocating assets - Many ULIP plans offer free switching between funds to maximize returns. You should always distribute your investment throughout multiple asset classes. You can change your allocation as per market performance, i.e. opting for more equity funds in your portfolio if you wish to earn higher returns during bull market runs or choosing debt funds more during market volatility. There are other ways of determining fund exposure as well.

For example, suppose there is a young, unmarried professional without any financial liabilities. In this case, they can readily allocate more investments to equity for aggressively growing wealth. However, once the individual gets married and has children, they may scale down exposure to equity and go for higher allocation towards debt. 

Keep reviewing your ULIPs annually and maintain allocation strategies with the guidance of your fund manager. For example, suppose you allocate 70% towards equity in the early years and 30% towards debt funds. You can align this to 60-40 once you get married. Then, once you have children and start planning their future, you can scale it further to 20% in equity and 80% in debt funds. 

• Keep long-term goals in mind - You should primarily aim towards building wealth for the long haul and also meet future goals like buying a home, covering the costs of higher education for children, their weddings, retirement planning, and so on. Your future goals will automatically influence your investment strategy. For example, if you are investing in your child's higher education, you should switch to debt funds from equity funds upon developing a corpus in the plan's first few years. You should then return to debt funds once you are nearing withdrawal. 

• Utilize the top-up feature - ULIPs allow you to top-up your premiums with additional money to increase your investment as and when you wish. This feature can come in handy when you have a surplus amount that can be invested. 

• Let the company manage your funds - If all this seems a lot to you, it is possible to have a seasoned fund manager at the helm, guiding your investment to provide you with maximum returns. Most insurance providers offer this facility, and you can leverage their expertise to ensure you have the best possible investment strategy at all times. 

ULIP plans are always great investment options with regard to scaling up your overall returns and gaining higher exposure in the market as well. They also ensure life coverage simultaneously throughout their tenures, which is another plus point. Hence, you should invest in a disciplined manner to grow your wealth for the future while using the tips mentioned above to maximize your returns.