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Asset Allocations in ULIP - Know the Top Benefits

ULIP plans not only give the benefits of investment and market-related returns in one plan, but they also offer the benefits of asset allocation, which we shall discuss in detail.

  • Apr 27, 2022

ULIPs are becoming a popular way to invest money in various assets including stock, debt, and money market funds. The policyholder pays a certain amount, called a premium, from which a portion is assigned to various fund possibilities, and the advantages of the investment are realized. Moreover, when purchasing ULIP, an individual does not need to acquire a separate life insurance policy because it is incorporated in the plan.

ULIP plans not only give the benefits of investment and market-related returns in one plan, but they also offer the benefits of asset allocation, which we shall discuss in detail.

Benefits of Asset Allocation in ULIP

  • Profitable Returns

People who do not efficiently arrange the allocation of funds tend to invest without planning. It also makes it difficult for them to decide whether the return on investment is adequate to meet their financial objectives. On the other hand, a few investors are too ambitious or overly cautious and make investments appropriately.

You’ll be able to estimate how much return on that investment you may expect depending on your appetite for risk with the right skills for an asset allocator fund.

  • Risk Mitigation

Every investor will make investment plans and portfolio allocation based on their previous investing experiences and tolerance for risk. For example, if you’ve had a good return on past investments, you might be ready to take a bigger risk by investing in equity-oriented funds. On the other hand, if your assets have not produced satisfactory results, you may want to try investing in fixed-income products such as a fixed deposit or recurring deposit.

Your previous investing selections can aid you in following a correct asset allocation strategy, helping you to accomplish your financial objectives even more easily. Thus, asset allocation will help you in reducing investment risk and increasing your confidence in accomplishing the desired goal.

  • Asset Allocator Fund Tax Benefits

Investments in ULIPs qualify for a tax deduction under section 80(C), and the policy returns are tax-free upon maturity as per section 10 (10D) of the Income Tax Act.

  • Aligned Timeline

Aside from your risk appetite, the time frame is an important consideration in asset allocation. The timeline element will assist you in determining which asset type you should invest the majority of your funds in.

It’s worth noting that the longer your time frame, the more you can invest equity funds and a small amount in debt funds for secured returns.

  • Market Fund Benefits

Asset allocation is a continuous process, not a one-time event. Most ULIPs now allow policyholders to move funds up to a set number of times per policy year. As an investor, you can utilize this feature to match your investments with market volatility. For example, if the markets are trending bullishly, you may raise your equity allocation. In contrast, if the markets are going bearishly, you could transfer your money to debt funds.

To summarise, after learning about the advantages of allocation of funds in ULIPs, it is clear that this plan offers several advantages. However, you must conduct thorough research before making important decisions about your portfolio allocation.

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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Ref. No. KLI/22-23/E-BB/521


- A Consumer Education Initiative series by Kotak Life

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