How to monitor ULIP after purchase

A ULIP (Unit Linked Investment Plan) is the most advanced life insurance policy in the market today. It offers the great mix of life insurance and growth of investment through market linked securities in one single plan. However, the investment option available in a ULIP is not always understood by the investor or fully utilised. This can hamper the effectiveness of the plan and may not offer you the expected return or the return which it is capable of generating from the market-linked investments. Hence, it is essential to monitor ULIP after purchase. This article will guide you to know how you can effectively monitor your ULIP plan to gain maximum outcome from it.

To monitor the ULIP plan effectively, we will need to analyse the factors that influence the plans and then act on it accordingly to gain maximum output from them.

Market risks

In ULIP, part of the investment goes towards funds which are invested directly in the stock market. As we all know market conditions are volatile and investments made can give you good returns or even make a loss on your investment.  Keeping yourself updated of the market conditions will help you to know how well your ULIP will perform. You can make an appropriate decision to enhance the value of the plan for better returns

Choice of funds

ULIP allows you to choose the funds as per your risk appetite and financial goals. Your choices of funds influence the returns from the ULIP.  You can also switch funds up to limited times in a year; normally 4 – 12 switch options are allowed for free, any more may attract a nominal fee. If you are updated with the market conditions, you can make the changes in your funds to get maximum return from your ULIP plan.

Duration

Any investment to give good results requires time and commitment.  You will need to be patient with ULIP and must not surrender it in haste. Over time, ULIP will help you achieve your long-term financial goals. By giving time, you are more likely to gain good returns and it will help in wealth generation for you.

Know the actual returns in ULIPS through IRR

IRR is known as the internal rate of return, it means adjusting all the cost/expenses to know the actual returns. IRR is a general concept and not only related to ULIP. When monitoring ULIP, you should not only look at the fixed rate of return like 5% to 10%. You should also look at IRR to get an idea of actual returns.

Which ULIPs are the best to buy in the market presently?

There are many ULIPs that are good on the basis of IRR in the market. Choosing a ULIP is not the job finished for you, you also need to know how to manage it effectively. You should be astute to know how to take advantages provided by ULIP based on the features provided in the plan like switch option etc. Hence, managing the ULIP is the ultimate key to ensure you get fruitful returns.

How to effectively manage a ULIP plan?

Managing a ULIP is simple, but requires commitment from your side. You just need to do simple changes as and when required and grab the opportunity to make a good return. When you see markets are high and there is a lot of buzz, then you should decrease your equity and shift to debt funds. Likewise when the market is stagnant and there is not much happening, then you should shift your investment more towards equity. This way you will be able to acquire more units of a particular fund and will be able to generate good returns in the long run.

How to make sure the managing of fund ratio is easily done?

You need to set your equity/debt ratio which best suits your investment style and is in sync with your financial goals. Once you choose it, make sure you maintain to maintain throughout. For example, if you make your mind and decide on equity/debt ratio of 75:25 and after a year you see it has been changed to 60:40, then you need to move your debt back into equity.  So basically if the equity market is up, then you move your money to debt and if everyone is afraid to put money in debt funds, then you can shift some part of your investment towards equity.

The big advantage in ULIP is that there is no tax liability on switching of funds from equity to debt. If you do this in a mutual fund, you will need to pay a short-term capital gain tax of 15% if funds are redeemed within a year. So you need to utilise the switch feature in the mutual funds effectively to take advantage of your ULIP plan to get maximum returns.

So always remember the three basic rules of ULIP-

•    Up your debt allocation if the equity market is too high and everybody is in the rat race to get equity stock in the market.

•    Likewise, increase your equity allocation if the market is performing poorly and there is not much happening in the equity world (take advantage to buy more units of cheap equity stock)

•    If you are confused and baffled, then just increase your debt allocation and be in peace.

Conclusion:

ULIP is one of the best financial products in the market today. The dual benefit of very important life insurance and investment growth option is not seen in other financial instruments. The switch fund feature of the ULIP plan is extremely beneficial but if you know how to use it. It is an investment that needs some work and attention from your side, but if you monitor it well, it has great potential to gives you maximum returns. Try not to buy ULIP just for tax saving and get out from it in short term. There are penalties if you try to redeem ULIP under 5 years and only after the 5th year there is no charge on exit. ULIPs are one of the best financial instruments revolutionising the life insurance market and in great demand amongst the investors. So plan your ULIP purchase today and monitor it effectively to avail good output from your investment alongside having financial protection always with life insurance component of the ULIP.