At the time of initial investment you can chose which funds to go for depending on your investment objective. There are many options available to you to chose from as can be seen from the below chart.
One of the big advantages that a ULIP offers is that whatever be your specific financial objective, there is a ULIP plan which you can choose from:
– These ULIPs mainly invest in Equity Stocks. The investment pattern can range from 60%-100%. The investment objective behind investing in such products is to meet long term goals like retirement planning, children’s education planning, marriage planning etc. These investments come with high risk and returns. The minimum investment horizon for such investments should be at least 5 years.
– Quite contrary to equity investment based ULIPs, debt based ULIPs are more safe and hence returns are very predictable. These investments are normally meant for short term goals or one can utilize this category to shift funds from Equity Funds as the goal maturity comes closer by using the Switch facility. Through switch option, one can move from Equity to Debt fund and vice-versa at any point in time
– These are capital guarantee products that ensure that the amount you invest does not lose value and you get some upside of equity also. However it is foolish to assume that you get Sensex-linked return, with zero risk. Moreover, the highest NAV is only possible if you stay throughout the tenure of the fund. These plans pay the highest NAV achieved by fund units over a specified period of time ranging between seven and 10 years. They work on the constant proportion portfolio insurance (CPPI) model, which, while limiting downside in the event of falling stock markets, also tend to constrict gain and leverage that could be achieved through participation in rising markets. In ULIP NAV , given the guarantee, over the policy term, a significant portion of the fund stays invested in debt market instruments. Depending on the percentage of guarantee offered, there is also usually a separate guarantee charge, which lowers the investment component. Such plans will appeal to investors with lower risk appetite who do not mind foregoing higher equity returns and paying extra charges for the sake of guarantee.
In a nutshell, it can be quite a considerable task for a novice investor to choose from the various investment options available. Hence it is always advisable to take the help of a financial advisor before committing your hard earned money.