A ULIP is an insurance product that offers you the best of both worlds — insurance and investment. When you purchase a ULIP, a part of the premium that you pay goes towards your insurance cover and meeting administration expenses. The rest is channeled into an investment fund, which works like a mutual fund. This investment fund invests in various equity and debt financial instruments that fit within the pre-specified broad criteria, which are outlined by the insurance company.
According, a fund my have a â€˜high-risk-high-returnâ€™ profile, where a substantial portion of the corpus is invested into equities, while another may have â€˜low-risk-low-returnâ€™ profile, where the investment options are largely restricted to debt and money market instruments. Yet another kind may have a balanced mix of equity and debt, rendering a medium-risk medium return profile. This gives an investor the freedom to choose an investment option that suits his or her risk profile.
On maturity of the plan, you are entitled to receive the policy fund value. This sum is equal to the number of units held by you multiplied by the fundâ€™s NAV.
The risk involved here is that due to the fluctuations in the market, the policy fund value at the end of the plan term might be less than the sum of the premiums paid throughout the policy.
The Solution â€“ Introduction of Capital Guaranteed ULIP
Capital guaranteed ULIP promise to return at least the net premiums (total premium less mortality and administrative charges) paid by the policy holder on maturity. In some cases, the sum guaranteed also includes bonuses.
Of course, if the policy fund value exceeds the amount guaranteed, then you are entitled to receive the policy fund value. In other words, they not only offer the benefit of any upside in the market, but at the same time protect the capital invested from being eroded.
Capital guaranteed ULIPs are long-term investment-cum-insurance plans, which offer the opportunity to reap long-term capital appreciation through an exposure to the markets, while at the same time, protecting investors from any capital erosion.
Guaranteed plans cater to the risk-averse investors who are stuck with cash or fixed income products which may fail to generate wealth over time, as they may not meaningfully outpace the cost of living Appropriate equity exposure, backed be capital guarantees, can play a key role in genuine wealth creation over a longer period, but only when combined with prudent on-going financial planning and professional management.
With the uncertainty and volatility prevailing in the stock Markets, ULIPs with a capital guarantee come as a boon. They not only offer the Benefit of any upside in the market, but at the same time guaranteed the capital invested, hereâ€™s taking a look at this investor friendly product.