Here is Why You Should Not Worry About Short-term Market Volatility with ULIPs
Over the years, Unit Linked Insurance Plan or ULIP has gained immense popularity among Indian investors. It is a hybrid product that comes with the benefit of insurance protection and returns on investment in a single policy. In ULIP, a portion of the premium is used to provide life insurance coverage. The remaining amount is invested in different money market instruments like debt and equity funds, bonds, stocks, etc., to generate returns for you.
Although ULIPs are known to offer high returns compared to other life insurance policies, many people, especially first-time investors, do not even know the ULIP full form. They feel sceptical about it because it offers market-linked returns. They fear short-term market volatility. However, experts suggest that the equity markets go up and down due to several factors. But investors need not worry about market volatility if they plan their investments meticulously.
This write-up discusses a few tips to help you get valuable returns from ULIPs.
Have a disciplined approach towards ULIP investment
To be successful in the equity market and get valuable returns, you must be disciplined towards your investments. This means you must regularly invest over an extended time without worrying too much about the market movements.
This approach will yield good results in the long run as regular investments average out the loss incurred through different phases of the market movements. You get the advantage of the cost of Rupee-Cost Averaging.
It is an investment technique where you periodically invest a small and fixed amount. This method ensures that you get more units of shares when the prices are low and vice-versa.
Take advantage of flexible payment mode
ULIPs are essentially long-term financial products and are designed in a way that investors have a long-term investment approach. Also, since ULIPs have a lock-in period, it allows you to be financially disciplined and invest regularly.
When you buy a ULIP policy, the insurance company gives you the flexibility to choose the premium payment mode as per your needs. You can choose to pay the premium every month, quarterly, half-yearly or annually. However, if you are a risk-averse investor, it is best to select the monthly premium payment plan.
This will help you make a small investment, and the amount will easily fit within your budget. Also, regular investments minimise the risk of loss as the investment is spread over a more extended period, negating the extreme short-term market movements.
Keep a tab on the recent market trends
Various factors such as global economic conditions, elections, etc., affect the market movement. As a responsible investor, you must always keep a tab on the various national and international events and trends that could affect your investment.
In such situations, you must take advantage of the fund switching option in ULIPs and move your funds to take advantage of the market situation, increase your returns potential, and reduce the risk of loss. Also, you must know that the return potential greatly depends on the holding period of the assets.
Experts suggest that a more extended holding period of 10 years or more increases the chances of getting valuable returns.
One of the best ways to count the short-term market volatility is to invest regularly and stay invested for a longer period. Market volatility is inevitable. However, it balances itself out in the long run.