Taking a decision which involves investing your hard earned money in the stock market is not an easy one, especially since the market can take a downward turn any day. Thus to mitigate this loss any financial planner will advise you to do your research properly before investing in a financial product.
Let’s understand this with the example of ULIP. There is a lot of angst amongst investors who were misled by agents into buying ULIPs by misinforming them or not informing them of the various risks and charges. With the regulatory authorities removing most of the shortcomings of this product, the new ULIP Plan is more customer friendly and transparent.
How to Choose a ULIP Plan ideal for me?
ULIPs can prove to be quite beneficial in your investment planning. However, in order to benefit from them you need to understand its features and how to choose one that fits your risk profile. The main features that you need to watch out for when purchasing a plan are:
• All the charges deductible under the policy
• Payment on premature surrender
• Features and benefits
• Limitations and exclusions
• Lapsing and its consequences
Type of ULIP
There are two types of ULIPs which differ primarily in the death benefits they provide. Type 1 gives either the sum assured or fund value, whichever is higher while Type 2 gives both sum assured and the fund value. Even though it may seem to be a no-brainer that you should opt for Type 2, mortality charges in the other type of plan come down as the fund value goes up. If the fund value then exceeds the sum assured, there will be not be any deduction of mortality charges.
Long Term
For a ULIP Plan togive you the desired benefits you need to give it at least 15 years. If you invest in it with a short-term horizon of 5 to 10 years then the returns will not be significant.
Affordability
It is important that you decide your investment commitments keeping in mind your income and future expenses. Investing in a product with high premiums when you are young can turn out to be a financial burden once you get married and start a family.
Read and Understand the Features
One of the key features of a ULIP - switching, allows you to shift from debt to equity depending on your expectation of how the market will move. This is a great feature which can help you hedge your losses in case you feel that the fund you have invested in may not perform well. These are some tips which will help you understand how to select a ULIP Plan.
