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Buy ULIPs Stay Insured Stay Invested! .pdf



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Buy ULIPs — Stay Insured, Stay Invested!
ULIPs (Unit-linked insurance plans) are products that provide you with combined benefits of
insurance and investment. The amount you pay towards the premium of a term plan is partly
contributed towards providing a live cover, while the rest is invested after deducting the management
and distribution charges.
The share of your premium that is invested towards various fund options is actually managed by
professional fund managers. However, whether to invest the funds equities, debt or money market
instruments is your pick.

All of these investment instruments bring diverse levels of return potential as well as risk. However,
usually the latent returns are directly proportional to the risk involved in the investment. For example,
equities are said to be the highest-risk investments, but at the same time, they even fetch highest
returns if you stay invested for a long term.
Therefore, the best feature of a ULIP plan is that it allows you choose the fund you wish to invest in and
the amount you wish to allocate towards the fund. It also gives you the freedom to switch between the
fund options any time.
The following table shows various types of ULIPs along with the level of risk involved in them and the
investment option they offer:

Types of ULIP Funds

Risk/Return

Investment Options

Equity Funds

High

Majorly equities

Income, Fixed Interest, and
Bond Funds

Medium

Government securities,
corporate bonds, and other
fixed income instruments.

Balanced Funds

Medium

Fixed interest instruments, and
equities

Cash Funds

Low

Cash, bank deposits, and money
market instruments.

The following are the benefits you can get by investing in a ULIP


Plenty investment options

ULIPs offer to you an array of investment options to choose from. Based on your preference and risk
appetite, you can opt for endowing your funds towards debt funds, pure equity, maybe a combination
of the two.


Systematic investments

ULIPs channelize your funds towards various investment plan in an organized manner. Investing small
amounts after frequent intervals over a period of time allows you to gain from the benefit of rupee cost
averaging. Rupee cost averaging is basically a technique of invest regularly but in small doses; and
investing less when the prices are high and investing more when the prices are low. This process helps
maintain a balance between the highs and lows of the market fluctuation and consequently, your funds
to grow.
The table given below shows the impact of rupee cost averaging considering the scenarios of Mr.
Sharma and Mr.Yadav
Mr. Sharma
Month

April

Mr. Yadav

Price per unit Investment (Rs.) Units Purchased Investment (Rs.) Units Purchased

30

1,20,000

4,000

20,000

667

May

25

-

-

20,000

800

June

28

-

-

20,000

714

July

32

-

-

20,000

625

August

33

-

-

20,000

606

September

32

-

-

20,000

669

1,20,000

4,000

1,20,000

4,037

Total

In the given table we see that Mr. Sharma in the month of April buys 4,000 equity shares at the rate of
Rs. 30 per share. His total investment comes out to Rs. 1,20,000. Mr. Yadav invests the same amount in
small chunks of Rs. 20,000 over a period of 6 months. With the help of this periodic investment Mr.
Yadav, even after spending equal amount as Mr. Sharma, was able to purchase 4,037 shares (37 shares
more than Mr. Sharma) by the month of September.


Flexibility

ULIPs mostly give you the flexibility to choose the amount of life cover and the amount of premium as
per your desire. Also, it allows you to switch between the fund options with ease


Transparency

ULIPs are the best in terms of transparency as they let you track the performance of your financial
portfolio. By investing in ULIPs you clearly know where and how your capital is invested. Also, you
always have a fair idea about how much your net investments are with time.


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