Common buying mistakes with ULIP schemes
When people think about investment, the stock market is the natural choice that comes to their mind. While it is easy to grow your wealth by investing in stock markets, huge risks can also be 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 looking to buy a ULIP plan online tend to make mistakes when selecting the ideal plan. Read on to learn how you can avoid such mistakes when purchasing ULIPs.
What is ULIP Policy?
A ULIP is a life insurance policy that provides the policyholder with dual benefits of investment and insurance under the same procedure. You get to invest in equity funds and debt funds. Similarly, you can invest in balanced funds, a combination of equity and debt. The investment made is based on your risk appetite and requirement.
The insurer provides life protection cover to your loved ones. If you pass away suddenly during the policy term, the insurer will financially compensate your loved ones with a death benefit. They can use this amount to stay economically stable and manage necessary expenses.
When buying the policy, there are many mistakes people commit. Listed below are such errors:
1. Making wrong investments
In ULIPs, you get to invest in different types of funds. You can invest in equity, debt, 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 opt for higher returns in a shorter period.
Investing most 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. 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
Lack of information can often be a problem when deciding the right plan. This is also a common mistake with ULIPs. Many investors buy a program that may not suit or fulfill their needs. 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 confuse them.
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. Knowing is always helpful in such situations.
3. Looking for a quick exit
Most people see ULIPs as a quick way of quickly earning good returns. However, most people are unaware that ULIPs do not start providing returns on investments instantly. It takes time for the returns to impact your assets substantially. When the returns are not as expected, people look to surrender their policy immediately. This could be wrong because you would 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 people make regarding ULIPs. You can always use the ULIP calculator before you invest in one to know which plan is more suitable for you.