Unit-linked insurance plan (ULIP) combines the best of both worlds – investment and insurance. In this, a portion of your premium is invested in the equity and debt instruments, while the other portion goes towards your insurance cover.
Since a portion of your overall premium is invested in equity markets regularly, you can earn higher returns after a period of time compared to other investments. Investing regularly balances out the market cycles over time. Thus, on average, you can get much better returns if you stay invested for the long term.
There are a plethora of unit-linked insurance plans in India, which are suitable for people with different financial goals and risk appetites. Usually, ULIP plans are differentiated based on the type of funds or their capacity to make corpus. Read along to know the different types of unit linked insurance plans present in India before you make your decision.
Unit-Linked Investment Plan Based On the Type Of Funds:
Not all unit-linked investment plans invest money in the equities. Various ULIPs invest in different financial instruments basis the risk appetite of the customers. Read along to discover various ULIP investment options based on the type of funds they invest in.
Equity
In this type of ULIP, your funds are utilised to buy equity shares of one or more than one companies. It is important to note that investing in equity is comparatively riskier. If you have high-risk taking capabilities, then you should invest in this type of ULIP as they give higher returns!
Debt
This is a medium to low-risk ULIP plan. In this kind of plan, a portion of premium money is invested in debt instruments like government securities and bonds, debentures, corporate bonds, and fixed income bonds. You should go for this kind of ULIP if you are not willing to take the risk. But note that the returns will be moderate at best.
Liquid funds
This type of ULIP plan is perfect for realising your short-term financial goals. In this plan, your money is invested in a highly liquid money market in financial instruments such as treasury bills, certificates of deposit & call money. Almost all the ULIP investments possess strong credit ratings and low risk.
Balanced funds
Best investment option for people with a low-risk appetite, this type of ULIP invests money in equity as well as debt financial instruments. The potential risk is spread out across high-risk and low-risk financial instruments. Hence, the volatility of equities is balanced out by the debt funds.
Cash funds
This type of unit-linked insurance plan directly invests the premium amount in very low-risk cash fund instruments. This includes term deposits, cash deposits, market funds, etc. However, do note that they offer the least amount of returns compared to other types of ULIPs, so make sure you know this before investing. If you don’t want to take risks and eliminate all risks of volatility, then you can go for ULIPs that invest in cash funds!
Now that you know various types of ULIPs, hope it becomes easier for you to invest as per your financial goals and safeguard your life simultaneously.