A sure-shot but secret technique to get the most out of your ULIP plan


ULIPs, or Unit-linked Insurance Plans, are a great combination of investment and insurance life cover. It gives you the benefit of a market investment as well as provides you with a life cover. However, they are not pure savings instruments. So a bit of conscious market monitoring will enable you to beat the market. Unit-linked insurance policies generally have at least 3 types of funds.

The types of funds that unit-linked policies usually have

Unit-linked policies generally have a fund that consists of investments in government bonds and debt instruments, which are generally low risk and low return. The second fund is generally a combination of government bonds, debt, and equities. You generally characterise it by medium risk and medium returns. The third fund usually consists of investments primarily in equities. It is the most aggressive fund of the three. It is generally high risk and high return.

What you need to understand about switching from one fund to another

Let us take a hypothetical situation. For the sake of explanation, you are investing $100 in a ULIP policy. Let’s say 2 dollars are spent by the insurer towards your life cover and the remaining 98 dollars are invested in any of the 3 funds. Let’s say the low risk, low return fund is at 10, the medium risk, medium return fund is at 12, and the high-risk, high return fund is at 15. If you choose to invest your money in the low-risk low return fund, you will get 9.8 units of the fund. Again, if you choose to invest in the medium-risk and medium-return fund, you will get 8.17 units. If you invest in the high-risk high-return fund, then you will get around 6.53 units. The units are calculated by dividing the amount of money invested by the value of the fund on a particular day.

Start by investing in the low-risk and return fund.

The trick is to start off in a safe mode by investing all your units in the low-risk, low-return fund. This will protect your money. Keep looking at the value of the units of the high-risk and high-return fund on a daily basis. When you believe the market has reached its bottom, transfer your money to a high-risk, high-return fund. Stay invested in the high-risk, high-return fund as the market begins to rise and recover.

Once you feel that the market is at its highest, switch back to the low-risk and low-return funds. Therefore, the mantra is to switch funds. Switch your funds to the low-risk, low-return fund when you feel that the market is at its highest and is about to fall. Switch to the high-risk, high-return fund when the market is at its lowest and is about to rise.

What will switching mantras do to your funds?

Let’s say you invest the hypothetical 98 dollars in the low-risk low return fund, which is valued at 12. It will buy you 8.17 units. Then you switch to the high-risk high return fund when its value is 10. Your money will buy you 9.8 units of the fund. As the market rises, the index of your high-risk high return fund rises to 15. Your 98-dollar unit value increases to 147 dollars. If you feel that the market will fall, you switch back to the low-risk low-return fund, which may be indexed at 12.5.

Therefore, this will buy you (147 dollars divided by 12.5) 11.76 units of the low-risk low return fund and will protect your increased money. If you are able to set aside 5 minutes every day to monitor the index of your fund value and catch the bytes regarding the share market, you will be able to get an awesome return on your investment by repeating this process. Know more at policybazaar

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