Benefits of Asset Allocation in ULIPs

 Asset allocation is all about balancing the risk to reward ratio in your investment portfolio by allocating your investment amount to the funds of your choice in the proper ratio. The primary purpose of an asset allocation tool is to provide flexibility to the investors and help them reduce their investment risks the best way they deem fit. 

ULIP schemes are one such investment avenue that allows you to do your own asset allocation that will help you maximise returns on your investment while offering a life cover from your invested amount itself. ULIP investment plans are meant to be the right balance of security and investment, and hence, asset allocation plays a very crucial role when you purchase one. Many factors go into this decision-making process, and knowing them before you begin working on the asset allocation ratio is vital. 

How to do asset allocation for ULIP?

ULIP full form stands for a Unit-Linked Insurance Plan, which allows you to create your portfolio by distributing your assets between debt funds and equity funds. 

  • Debt funds will be less risky for your investment as it earns lesser returns.
  • Equity funds would prove to be a highly risky investment choice as the return on investment is also very high.

To create the right balance of your investment between Debt and Equity, here are a few factors you must consider:

Your investment goals

Every individual has some long-term and short-term goals, and they start investing in funds to be able to achieve these goals. If your investment goal is to save in a plan to create wealth in the long term but not risk your investment portfolio a lot, you should be allocating assets more towards the debt side of the fund. 

Your risk profile

If you have a diversified investment portfolio already, then you must be making this decision accordingly. Investors who have already parked money in their retirement plan and have savings stashed aside for a rainy day are more open to investing in a higher risk instrument. If your scenario is somewhat similar, then having higher asset allocation in Equity Funds would be advisable. 

Weigh market scenario

While you are considering the right ratio between Debt and Equity funds for your ULIP, sensing the market is crucial. ULIPs offer you the flexibility to switch between funds, making it easier for you to quickly switch from a higher Equity allocation to Debt in case of volatile markets and vice versa in case of a booming market.

Bottom line

ULIPs offer flexibility with asset allocation, which is an added feather in their feature cap. With the help of the asset allocation tool, investors can make the most of booming markets by taking informed decisions at the right time and even saving themselves from a volatile market. 

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