All of us have our own financial goals. It can range from being debt-free to buying a house or retiring at the age of 40. It is normal to have dreams, but the challenge is to transform them into financial goals and work towards turning them into a reality. Converting the dreams into a reality is possible with the right investment decisions. There are multiple benefits of investing in Unit-Linked Insurance Plans (ULIPs), which include a lock-in period and will help you get closer to your goals. ULIPs also have the option to switch among funds and an advantage of tax saving on your investment.
Tips on goal-based financial planning with ULIPs
Listed below are seven tips, which will help in goal-based financial planning with ULIPs.
1. Consider investment options
In order to increase your wealth, you need to invest the savings into an appropriate investment product. In order to achieve higher results in goal-based financial planning, you could choose to invest in ULIPS. It is an insurance product that can help achieve long-term financial goals. The premium that is paid in the plan is divided into two parts, which include coverage for risk of life and investment into money market instruments. There are a number of features like the ease of switching the funds, flexibility in terms of premium period and amount, and partial withdrawals that make ULIP policies attractive for long-term goals.
2. Consider your risk appetite
Every individual has a different risk appetite. You need to choose the ULIP fund based on your ability to bear the risk. If you have a high-risk appetite, you can choose high growth funds.
3. Make the right choice of funds
There are different types of ULIP funds available in the market. Based on your risk appetite and the period of investment, you can choose amongst them. The different types of funds include growth fund, balanced fund, and conservative fund. The funds are also divided based on the duration. Balanced ULIP funds have performed exceptionally well over-one year and three-year periods. Certain ULIP funds have shown a return as high as 23% in the short term.
4. Set up an investment plan
In order to make a small and systematic investment into the ULIP, you can opt for a Systematic Investment Plan (SIP) mode. It will allow you to invest into the plan from time to time and you will not have to transfer your savings into a different bank account. You can set up the SIP at regular intervals based on your capacity to save and this amount will be directly invested into the plan chosen by you. The ULIP returns in 10 years have shown substantial growth across various funds.
5. Remain consistent and patient
In order to earn higher returns and reach closer to your goals, you need to remain consistent with the systematic investment plan. Additionally, you need to remain patient with the investment since it will not reap high returns overnight. Do not exit the fund if you notice that it is not performing well. Remain invested for the lock-in period in order to avail of the benefit of tax exemption. You might notice a fluctuation in the returns from time to time but it pays to remain invested for a long duration.
6. Review your portfolio
Once you start investing, you need to review the portfolio from time to time and make amendments if necessary. With reference to your ULIP policy, you can easily switch from one fund to another and there will be no tax implication on the same. If you notice that you are not moving closer to your financial goals, you might need to reconsider the investment options or increase the investment amount. If you feel that your portfolio is heavily concentrated on debt, you can switch the fund and opt for a higher weightage on equity. Set aside time for a thorough review of your portfolio every month or every three months to ensure that you are moving towards the right direction.
7. Switch funds
According to your type of goals such as short term, medium term, and long-term, you can make the shift in funds as you move closer to the goals. Based on the type of ULIP product chosen by you, your funds will be invested into an equity plan or a debt plan. As you move closer to the goal, you need to reduce the risk associated with it and move from an equity plan to a debt plan. Say, you have a ten- year plan and you have already completed seven years in the same. For the period of last three years, you can switch the funds from equity to debt in order to stay away from market volatility and to generate appropriate ULIP returns on the same. However, it is not advisable to switch funds constantly due to market movements. You cannot time the market and switching the funds could cause you more harm. It is best to switch the fund from equity to debt when you are closer to your financial goals.
Use these seven tips to make efficient investment decisions and achieve your long-term financial goals at the earliest. Goal-based planning calls for financial discipline and inculcates a habit of saving that is useful in the long term as well.