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Introduction

Unit Linked Insurance Plans are hybrid instruments that offer a combination of life insurance and investment components. A part of the premium you pay goes towards a ULIP scheme is dedicated towards life cover, which enables you to secure your family’s future, while the remaining portion is invested in either debt, equity or a combination of both. The latter serves the purpose of investment and wealth creation.

 

Let’s talk about the investment part of the ULIPs in a little more detail. We mentioned that the money is invested in either debt, equity or a blend of both. You must be wondering how this split is decided? The fund allocation is made in accordance with your risk appetite; you can choose to invest in equity if you have a high risk craving, or into debt, if you want to play safer, and don’t mind the trade-off of lower but assured returns.

 

It can be intimidating to understand how the investment takes place, so let us break it down into understandable bytes.

 

There are 8 funds to choose from:

 

  • Equity Growth Fund II

  • Accelerator Mid-Cap Fund II

  • Pure Stock Fund

  • Pure Stock Fund II

  • Asset Allocation Fund II

  • Blue Chip Equity Fund

  • Bond Fund and

  • Liquid Fund.

Now, how you decide to invest amongst these eight fund types is called your investment portfolio strategy. It is important that you make this investment strategically in order to avail maximum returns from your funds.

 

You could choose to invest between these 8 funds and decide on your own how you wish to allocate the premium, under the Investor Selectable Portfolio Strategy. If you want to cash in on the market fluctuations and secure gains while maintaining the asset allocation, you could follow a Trigger Based Portfolio. And if monthly rebalancing sounds like your thing, the Auto Transfer Portfolio strategy may be a good fit.

 

However, if you want to leave the fund allocation to the company’s experts, the strategy you should opt for is the Wheel of Life portfolio strategy.

 

Here’s the theory behind a Wheel of Life Portfolio Strategy: at different stages of life, your financial resources and financial decisions cater to different goals. You might be saving for a car right now, but years from now it could be a home that you want. Or a wedding. Or your kid’s education. You get the drift. You have a different risk profile at different ages, therefore, your investment strategy should be re-aligned to such changes. The Wheel of Life Portfolio, as the name suggests, takes this difference of risk appetite and goals into account.

How does the Wheel of Life Portfolio Strategy Work to Adapt to your Age?

Simply put, the premium you pay towards say ULIP plan such as Bajaj Allianz Future Gain is invested across five fund options in a pre-defined ratio, based on the number of years to maturity. This ratio changes as the policy ages towards maturity.

 

Under this strategy, the task of portfolio management is transferred to the insurance company, albeit in a predefined fashion.

 

  • The initial premium is invested majorly in equity-oriented funds, on the assumption that your risk appetite is larger when you begin. So your regular premium and top up premium will be allocated in various funds (namely Bluechip Equity Fund, Equity Growth Fund II, Accelerator Mid-Cap Fund II, Bond Fund & Liquid Fund) in the proportion as mentioned below, depending on the outstanding years to maturity

  • On each policy anniversary, the fund value is reallocated among various funds in the proportion based on your outstanding years to maturity.

  • Thereafter, as the policy years go by and the policy nears its maturity date, the funds are gradually switched to debt-oriented funds. Apart from your human risk profile, the rationale behind more conservative investments in the later years is to safeguard the profits earned in earlier years from market volatility when the plan is coming to its fruition.

Under this portfolio strategy, the option of switching units or altering apportionment is not available to you, but you can switch out of it with a 30-days’ notice.

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