Bond funds or debt funds are a kind of invest offered under the Unit Linked Insurance Plans (ULIPs). As you know, with ULIPs, you can seek benefits of investing in funds of your choice as well as life insurance. Here, a part of your premium amount is used for insurance while the remaining portion is invested in funds.
Now, these funds can either be equity-oriented funds, debt fund, or a combination of the two. Bond funds, on the other hand, are a type of debt funds. Investors with a low-risk appetite and who want steady returns on their ULIP plans should consider investing in debt funds.
Bond funds are also famously known as income funds. Much like mutual funds, your money is invested in a scheme along with other investors. Here, the main objective is to gain an income stream for everyone investing in the scheme.
Hence, the insurer will invest your money in fixed income securities like government securities, Government Issued Long-Term Stocks (GILTS), bonds, debentures, and fixed deposits. The concept of bond funds was developed under ULIP investments, mutual funds and other investment companies.
The bond funds come in various types but generally fall under the following three categories –
Short-Term Investments: For those investors who have a short investment horizon of less than a year.
Medium-Term Investments: It is ideal for people with an investment horizon of at least three years.
Government Securities or Gilts: These are also known as G-sec funds.
Note that bonds and Government securities come with either long-term or short-term maturities to gain maximum ULIP returns. These are also known as dynamic bond funds.
Since you (the investor) may have a low-risk appetite in the beginning, bond funds are expected to earn steady returns. Your fund manager will invest in fixed income securities with high credit rating and established financials. This thus reduces any risks in repayment of capital and interest.
Like we mentioned earlier, the primary objective of bond funds is to earn you income. And this is achieved in two ways –
Capital Appreciation: Here, the bond fund NAV (Net Asset Value) increases over some time.
Dividend Pay-out: Here, you will receive pay-outs at regular intervals depending on the surplus fund.
To understand the working of bond funds, here’s an example.
Consider that a corporation like Ford Motor Company is offering bonds that pay 7 percent interest for 30 years. You (the investor) decide to purchase INR 10,000 worth bond funds. You will receive a bond certification in return to confirm your purchase. Then, you will keep receiving 7 percent interest which is INR 700 for the next 30 years. By the time the policy matures, you will receive the principle amount INR 10,000 along with the interest amount earned.
By now, you must be well-versed with the fact that bond funds are debt funds with a low-risk appetite. Hence, they are ideal for people planning their child’s educational future, saving money for a house, or investing for a dream wedding. Bond fund returns work the best when the investment is made for the long-term.
People usually wonder how much money they will receive after their ULIP plans matures. This is when a ULIP calculator comes into picture. This tool is specially designed to help you and other investors to calculate the premium amount and check the ULIP returns. Based on the input – the premium amount and policy tenure – the ULIP calculator will calculate the ULIP returns offered by the plan you have chosen.
For those who have little to no understanding of how the share market works, can begin their investments with bond funds and seek ULIP benefits. After a while, you can move on and switch to equity-oriented funds to yield higher returns.
Investing in Bajaj Allianz Life’s exclusive ULIP plans available on Finserv MARKETS has dual-benefits, allows you to build your wealth over time, offers tax-benefits, provides protection for self and loved ones, and more.
So, don’t wait. Start your investments with ULIPs at Finserv MARKETS and grow your wealth over time.
Also, you can read about fund switching for ULIP plans by visiting us our online portal. This will help you to maximize your gains in the long run.