The unit-linked insurance plans which until now failed to gain much flavour among investor class can now with the changes is expected to gain momentum and provide good returns to investors. Know about the new ULIPs and how they can yield better returns.
ULIP plans that are investment cum insurance product provide investors with multiple choices when it comes to fund selection. And, based on the risk profile, time horizon and investment objective, investors can park their funds in any of the available option. So, with a different risk profile, such funds offer different return.
Here's a look at some of the common fund options available under the ULIPs with risk characteristics:
1. Equity funds: Investors with a high risk appetite and seeking considerable capital appreciation can invest in these funds that invest primarily in stocks of different companies listed on the exchange. Nonetheless, such funds carry medium to high risk.
2. Cash funds: Also referred to as money market funds, such funds invest in money market
instrument, bank deposits and cash. With lower risk, an investor can expect to realize nominal returns.
3. Balanced funds: Within the category, investor funds are invested in a mix of fixed interest and equity basket. As such the inherent risk of such funds for the investor is classified to be medium.
4. Income, fixed interest and bond funds: With medium risk for the investor, such funds invest in government or G-securities, corporate bonds and other fixed-income bearing financial instruments.
So, return from ULIP plans is determined on the basis of chosen funds and it does not guarantee any assured return. All the more, risk pertaining the investment has to be borne solely by the ULIP policyholder. Also, past returns of the fund should not be relied on completely as they may not be clear indicator of future fund performance.
Information courtesy: IRDA website