ULIPs or unit-linked investment plans represent the best of worlds, i.e. insurance and investments. They can often help you achieve your future life and wealth creation goals alike. But how do they work or align with your goals? In this article, we will discuss the features which make ULIPs suitable for fulfiling a variety of life goals.

What Are ULIPs, And How Are They important?

ULIPs, or unit-linked investment plans, are steadily becoming investors' preferred investment options. ULIPs are mainly essential for two reasons, i.e. they offer life insurance coverage along with investment returns. Moreover, they are hybrid investment options that suit the needs of various investors. Your premium is invested in market-linked instruments while providing life coverage simultaneously. You can thus meet your future investment goals while simultaneously ensuring your family's future financial security in your absence. This dual benefit makes ULIPs essential for every portfolio in recent times.

What Kind Of Investor Are You?
Before venturing into working out your future returns with a ULIP calculator, you should understand your nature as an investor. Here are some pointers that may help-

● What are your future financial goals? Do you wish to accumulate money for retirement? Do you want to meet other costs like the higher education of children or buying a house? You should first determine your future objectives before investing.

● What is your current financial state? It would help if you first understood your monetary scenario and how much you can invest for the long haul. This requires an analysis of your expenditure and your additional savings.

● What is your appetite for risk? Are you at the age and stage to take financial risks, or do you wish to play it safe? This will naturally determine your investment allocation strategy, i.e. how much you will allocate to equity or debt funds in your ULIP.

● Are you willing to invest for the long haul? ULIPs usually have minimum lock-in periods of five years, and you cannot withdraw funds within this period. After that, you can make partial withdrawals if you wish. Can you keep your money intact and help it grow over the long haul? You should understand this aspect.

● Are you inclined towards managing your investment management, or do you wish to give the responsibility to the insurance company?

● Can you invest based on your evolving or changing risk appetite? This will naturally depend on your changing finances and the stages of your life.

What Are Your Goals?
What are your financial and personal objectives? These may be classified into various heads, including the following:
● Retirement planning
● Buying a house
● Higher education of children
● Weddings of children
● Buying a vehicle or other assets
You should zero in on your goals before deciding.

How do your goals affect your ULIP fund choice?
Naturally, your financial goals will impact your ULIP choice. In addition to the policy's tenure and the amount you require to invest in getting the desired returns, your goals will drive the choice of fund where you invest your money. Different funds are suitable for attaining different goals. Let's look at how -

● Equity Funds are ideal for those with a higher risk appetite and can readily take risks. These investments garner higher returns accordingly, while the primary objective is capital appreciation.

● Bond and Income Funds are suitable for those who are looking for moderate levels of risks and decent returns, with investments of funds in fixed-income instruments, corporate bonds, and government securities.

● Asset Allocation or Balanced Funds are relatively stable, while these funds are mainly a fusion of fixed interest options and equity-based funds. The capital will be split between funds with lower risks and equities with higher risks.

● Cash Funds are called liquid or money market funds, and the capital will be deployed across short-term market instruments like commercial paper, treasury bills and bank deposits, and low-risk funds.

Naturally, suppose you have crucial goals like your child's higher education. In that case, you may consider higher allocation towards income and bond funds which are relatively safer or even balanced or asset allocation funds. Similarly, choosing equity funds would be better to maximise wealth creation if you are a young professional with a long investment horizon.

How can ULIPs help you fulfil your goals?
ULIPs help achieve various objectives. ULIPs come with tax deductions up to Rs. 1,50,000 per year under Section 80C of the 1961 Income Tax Act. The death benefit also has tax exemptions under Section 10 (10D).

You can switch across equity and debt funds to achieve balanced or aggressive returns over the long haul to meet your future objectives. You can also invest above your regular premium based on the plan's terms and conditions and your financial position.

You can use a ULIP calculator to determine your expected returns and their rate over a certain period. This figure will help you work out your allocation strategy. Liquidity options are also available after the lock-in period, although this should be avoided if you wish to accumulate a better corpus in the future. Finally, you can get higher profits courtesy of market-linked returns from ULIPs.

Wrapping Up
ULIPs can be beneficial investment options throughout your entire journey as an investor. When starting out, you can allocate more money towards equity funds when you have a higher capacity for risks and wish to grow your corpus aggressively.
Later on, when you are in sight of your goal, you can switch to more balanced and debt funds to ensure the security of your money to meet future objectives like the higher education of your children or their weddings, for instance. This usually happens with advancing age. Hence, ULIPs can be a great way to meet your financial objectives in the long term.