Everyone must have the heard the most popular adage, ‘There are two sides of the same coin.’ Well, this quote quintessentially holds true when it comes to certain investment plans, especially a Unit Linked Insurance Plan (ULIP). Investment in a ULIP Policy ensures that an investor utilizes the numerous funds offered by the insurance companies. A ULIP Plan allows investors to make selections from equity funds and debt funds based on their risk appetite.
If you’re wondering which type of ULIP funds matches your palette for risks, go through the guide on the best of both worlds provided by ULIPs mentioned below. Take a look:
What are Equity Funds?
While a majority of investors prefer to invest in equity funds, the rest of them prefer to stay away from equity funds. If you’re a high-risk taker, the investment in equity funds of the ULIP Policy is the perfect choice for you. An investment in an equity fund is advisable only for those who can bear the risks fully. The reason why equity funds are risky is that they focus on equity markets with approximately 70% of the fund invested in equities at all times.
Since equity funds are aggressive in nature, young entrepreneurs invest more often in these funds in order to achieve higher returns. Since their risk appetite is high, these young entrepreneurs invest even when the market is running low. After the market bounces back the policyholder makes profits in the form of high returns on investment.
What are Debt Funds?
Debts funds are the most secure form of investments. When you invest in a debt fund, no investments are further taken forward to equities. Therefore, a majority of investors prefer investment in debt fund due to the low-risk involvement
Investment in debt funds involves government securities, corporate bonds, and money market papers issued either by the Government of India or corporates and banks. Additionally, the funds also invest in the money market instruments as stated by the Insurance Regulatory and Development Authority (IRDA).
How to get Equity and Debt funds in ULIPs?
When a policyholder invests in a ULIP insurance, he is given the choice to select from equity funds, debt funds, and balanced funds. A majority of customers typically juggle between the selection of either equity funds or debt funds. Post the investment in a ULIP Policy, the investor should make a righteous choice based on his risk appetite.
On the other hand, a ULIP Policy also provides flexibility to its investors in the form of switching options. A policyholder can exit his current fund and get his funds transferred to another in order to get better returns. For instance, if an investor has previously invested in debt funds for its low-risk involvement, he can switch to equity funds for higher gains.
Now that you know when and how to invest in equity funds and debt funds, what are you waiting for? Before you invest in one of these ULIPs, it is advisable to do a little background check on ‘what is ULIP’ and then make an investment, accordingly. Moreover, check the past ULIP performance of the funds in order to ensure that you generate higher returns on from the right type of funds under a ULIP investment.