Unit Linked Insurance Plans (ULIPs) were always seen as a 'wonder product' that simultaneously fulfilled an individual's needs for investment and insurance.
However, the recent downswings in the markets have forced investors to do a rethink. Very often it was poor selection that was responsible for the investors' woes. Here is a 5-step strategy for investing in ULIPs.
1. Understand the concept of ULIPs
Try to do as much homework as possible before investing in an ULIP. This way you will know what you are getting into and won't be faced with unpleasant surprises at a later stage.
Our experience suggests that many a time people do not realise what they are getting into (in fact we have been approached by several people who wanted to cancel the ULIPs they had been coerced into taking by unscrupulous agents). Gather information on ULIPs, the various options available and understand their working.
Read the literature available on ULIPs on the Web sites and brochures circulated by insurance companies.
2. Focus on your requirement and risk profile
Identify a plan that is best suited for you (in terms of allocation of money between equity and debt instruments). Your risk appetite should play an important role in the plan you choose.
So if you have a high-risk appetite, go in for a more aggressive investment option and vice-a-versa. Opting for a plan that is lop-sided in favour of equities when you are a risk-averse individual might spell disaster for you (this is true in most cases currently).
3. Compare ULIPs of different insurance companies
Compare products of the leading insurance companies. Enquire about the premium payments as ULIPs work on minimum premium basis as opposed to sum assured in the case of conventional insurance policies.
Check the fund's performance over the past six months. Find out how the debt and equity schemes are performing and how steady the performance has been. Enquire
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