When making an investment, one of the first things you look for is the guarantee of desired returns. ULIP policy is a popular investment option among investors. But is a unit-linked insurance plan (ULIP) the right choice when it comes to assured returns? Read on to find the answer.
Are returns guaranteed in a ULIP Plan?
Before seeking an answer to the question above, you need to understand that investments are mainly of two types:
- Guaranteed investments
- Market-linked investments
The chief difference between the two is the guarantee of returns. In the first case, the minimum return rate is announced at the start. However, the returns depend on time in market-linked investments. In other words, market-linked investments help in wealth-building over time. Their ROI depends on how the assets perform in the market.
An ULIP plan is also a similar market-linked investment product. Though the returns are not guaranteed in ULIP, you will be able to multiply the returns if you stay invested for a certain time. Thus, investment returns are not guaranteed in a ULIP policy, but they can be ensured through long-term investment.
How to ensure guaranteed returns in a ULIP Plan
Although ULIP plans don’t have guaranteed returns, its features can ensure you get steady and healthy returns with lower risk. You need to:
Turn to liquid funds
A liquid fund is a fund where the money gets invested in debt funds or money market instruments. It has high liquidity and the least equity contribution. At least forty percent or more of the fund is invested in the debt instruments. Since the funds have higher security, they can help you get constant returns.
Opt for automated portfolio management
Some ULIPs give you multiple options for policy management with the aim of generating higher returns. Automated portfolio management ensures that your funds are automatically managed without requiring too much involvement from your end.
Go for the debt funds
In ULIPs, debt funds invest in the top-ranked fixed-income securities. Thus, the return is fixed on these securities, and they come with a higher credit rating.
Though debt fund investments do not offer a return that is as high as the equity funds on a long-term basis, the good news is that the returns are pretty stable. Therefore, you can get minimum guaranteed returns from the debt funds in ULIP Plans.
Are ULIP Plans a good investment choice?
By now, it must be clear that despite being a market-linked tool, ULIPs are able to offer stable and steady returns due to a host of features they come with. When you use the right strategies mentioned above, you can effectively manage the risks and guarantee returns. Thus, there is no reason for you to think twice before making an ULIP investment.