What are ULIPs? Before you buy, check out this 5-step guide

May 01, 2018, 04:04 PM IST

A unit linked insurance plan (ULIP) is a combination of insurance and investment. A portion of premium goes towards insurance coverage while the remaining portion gets invested in mutual funds and provides returns to investors. Before investing in such an instrument, you need to be extra careful so, here we list 5 things to keep in mind before actually buying such a policy: 


ULIPs are for long-term goals: These policies are meant for long-term goals like retirement or a child's education because the premium goes into equities, which require a longer time horizon to provide better returns. 


Know your risk appetite: Risk-averse policyholders should invest a major portion of their investment in debt funds, while aggressive investors can go for equities vis ULIPs. 


Buy products online: It is advisable to buy ULIPs online. That way you can reduce the cost of commission and will have multiple product options to choose from.


Re-balance allocation closer to maturity: Closer to maturity date, one should dilute one's equity exposure and transfer the accumulated corpus into debt funds.


Compare and choose products wisely: Before buying a ULIP plan, one should compare all the products available online. Low cost should not be the only criteria to zero in on a fund. Go through the objectives of the fund carefully.