How much money should I park under different ULIP funds?

With the number of investors in the stock market having increased during the COVID-19 pandemic, the concept of wealth accumulation has gained more importance in a country like India. In simple terms, wealth accumulation is increasing your wealth over time. One way is of course though stock market investments. However, investing in stocks carries a huge risk, as market fluctuation impacts your investment. 

It could either give you solid returns or you could end up losing your capital altogether. There is a safer way to invest in stocks to gain wealth and get life insurance cover, all in the same policy. ULIP is a life insurance policy that offers these benefits. As mentioned, one part of the policy is market investment, which is done by investing one part of the premium towards different funds. Read on to know more about the different types of funds that you can invest in this policy to maximise your wealth.

The types of funds offered in ULIP

When one part of your premium is invested in market funds, you have the following options on offer to invest into:

1. Equity funds

Investing in equity funds basically means investing in the stocks of listed companies that are offered by your insurer. Fund managers will recommend you the stock options of different companies after an extensive research based on factors such as market performance, returns and value. The funds could be classified as small-cap, mid-cap or large-cap funds, depending on their market value. Equity funds carry a high-risk factor due to the nature of their investment; high returns are also expected when invested in equity funds. 

2. Fixed income and bond funds

As the name suggest, these funds offer fixed income in returns to the investor. When you opt for bond funds, the money is invested in securities and bonds belonging to the government and corporate bonds. This fund type carries a low-risk factor and offers low to medium returns to their investors. Fixed income bonds should be opted for by those who are looking for a long-term investment with steady returns and are looking for low-risk investment options.

3. Liquid funds

When you opt to invest in cash funds or liquid funds, your money gets invested in investment options known as liquid investment. This includes money market funds, bank deposits and cash deposits. This fund type carries a low risk factor, but also offers lower returns compared to other fund types. 

4. Balanced funds

Balanced funds are the safest invest option in a ULIP, meaning, it invests in both equity and debt funds. Such an investment means that you can get high returns from the equity funds, but you are also guaranteed fixed and steady returns from debt funds. When you opt for balanced funds, the money gets proportionally invested into equity and debt fund. 

Which funds should you opt for?

You have the option of opting for any of the funds mentioned above in your ULIP. However, selecting the fund in which you should invest depends on what your life goal or objective is. One type of fund will help you in achieving one goal; another will help in achieving a different type of goal. So, if you are:

1. Investing in this policy with the objective of securing your child’s future in terms of their education and marriage, you should opt for fixed income funds. Due to their low risk factor and fixed income, your child’s future will be safe and secure and will not get compromised in your absence.
2. Investing with the goal of securing your family’s future, opting for balanced funds is a smart choice. With the investment being proportionately balanced, the returns from equity and debt funds will help in securing a good amount for your loved ones and not leave them vulnerable during emergencies in the event of your untimely demise. 
3. Investing with the goal of wealth gain or wealth accumulation, you should go for equity funds. If you have a higher risk appetite and want good returns on your investments, equity fund is the one for you. However, do keep in mind that as you invest in company stocks, they react as per market trends and could fluctuate, which could either lead to gain or loss of your investment. Investing a small amount in debt funds along with equity fund could be beneficial in this life goal as well.

No matter what your life goal is, always be sure about where you want to invest in order to gain good returns and achieve that goal. If you want to get a better idea about what your returns could be based on how much you want to invest, you can take the assistance of the ULIP return calculator available on every life insurance provider’s website.