Financial planning can have a different meaning for different people. For some people, it could be all about saving for the future. For others, it could mean growing the capital and getting valuable returns on their investments. If you have any of these goals, you can easily accomplish this by investing in ULIP.
ULIP stands for Unit-Linked Insurance Plan. It is primarily a life insurance product that also offers investment opportunities. You can invest in different instruments such as stocks, bonds, debt and equity funds of your choice as per your risk appetite and long-term financial goals.
Let us look at the fund options in ULIPs
Investments in government bonds carry lower risk compared to other assets like equities. With bonds, you get the assurance of the safety of capital and stable returns. The government pays a fixed interest rate on the bonds, and if you stay invested in bonds until maturity, you can maximise the returns potential. Also, by investing in government bonds, you can diversify your portfolio and mitigate investment risk in other assets.
When you purchase stocks, you essentially own a stake in the company. As a stockholder of the company, you are liable to get a share in the profits earned by the company. One of the reasons many people invest in stocks is that it has high reward potential. Also, it offers excellent liquidity; you can sell the shares anytime you want. On the flip side, it also carries high risk. So, if you are a first-time or a risk-averse investor, it is better to have minimal exposure to stocks.
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When you invest in debt funds, you essentially lend money to the entity that issues the instrument. It invests in fixed-interest securities like government securities, bonds and commercial papers. One of the important reasons many people, especially those with a low-risk appetite, prefer investing in debt funds is because it offers steady returns and helps you grow your capital. Debt funds are less volatile compared to equities.
Equity funds generate high returns by investing in stocks of companies. These funds are considered the riskiest type of mutual funds. However, they also have higher returns potential than debt and hybrid funds. The returns you get significantly depends on the performance of the company.
In equity funds, the fund managers invest at least 60% of the assets in equity shares of the companies in line with the investment objective. Typically, the fund allocation is made of large-cap, mid-cap and small-cap stocks depending on the market condition. Equity funds generally offer high interest in the range of 10-12% over a more extended period of five years or more.
Hybrid funds invest in equity and debt instruments to avoid concentration risk and offer portfolio diversification. Such funds provide higher returns than the standard debt funds while not being as risky as equity funds. You can invest in various hybrid funds based on your risk preference and financial objective.
Thus, there are many fund options that you can invest in ULIPs. Know your exact needs and risk-taking capacity and choose the suitable funds accordingly.