When people think about investment, stock market is the natural choice that comes to their mind. While it is easy to grow your wealth by investing in stock markets, there can also be huge risks involved. As a potential investor, you can always consider safer options for investment. One such option is ULIP.
ULIPs have slowly become one of the preferred modes of investment for people looking to grow their wealth. However, potential investors who look to buy a ULIP plan online tend to make mistakes when it comes to selecting the ideal plan for themselves. Read on to know how you can avoid such mistakes when purchasing ULIPs.
A ULIP is a type of life insurance policy which provides the policyholder with dual benefits of investment and insurance under the same policy. You get to invest in equity funds and debt funds. Similarly, you can also invest in balanced funds, which is a combination of equity and debt fund. The investment made is based on your risk appetite and requirement.
The insurer provides life protection cover to your loved ones. In the event that you pass away suddenly during the policy term, the insurer will financially compensate your loved ones with a death benefit. This amount can be used by them to stay financially stable and manage vital expenses.
When it comes to a buying the policy, there are many mistakes that people end to commit. Listed below are such mistakes:
1. Making wrong investments
In ULIPs, you get to invest in different types of funds. You get to invest in equity funds, debt funds and balanced funds. Equity funds are high-risk, high-return funds. Debt funds are low-to-medium risk, medium-return funds. Balanced funds are a combination of both. As equity funds are related to the equity market, most investors tend to opt for them for higher returns in a shorter period of time.
Investing a majority of your money in just equity is risky due to the volatile nature of the market. Not only do the fluctuations impact your investment, but they also impact your returns as well. It is advised to go for balanced funds as your investments, will have a low risk factor and your returns will remain consistent.
2. Opting for the wrong plan
Many times, lack of information can be a problem when making decisions about going for the right plan. This is also common mistake with ULIPs. Many investors tend to buy a plan that may not suit or fulfil their need. For example, if a person is looking to increase their corpus with a long-term view, the ideal plan for them would be a debt plan. However, they might end up buying an equity plan instead. The lack of knowledge about the difference between the two could cause confusion. Similarly, someone looking for good returns in the short term should naturally go for an equity plan. However, they could end up opting for a debt plan. Having knowledge is always helpful in such situations.
3. Looking for a quick exit
Most people look at ULIPs as a quick way of earning good returns quickly. However, most people are not aware of the fact that ULIPs do not start providing returns on the investments instantly. It takes time for the returns to actually have a substantial impact on your investments. When the returns are not as per expectations, people look to surrender their policy immediately. This could be the wrong move as not only would you lose out on a great investment opportunity. You could also end up losing all the money invested towards the policy. It is always advised to stay invested till the end.
These are just a handful of mistakes that people do when it comes to ULIPs. You can always use the ULIP calculator before you invest in one to know which plan is more suitable for you.