In order to generate wealth using ULIPs, there are 4 different types of portfolio creation strategies. Investors can choose a strategy based on their requirements.
Each individual has different investment needs, strategies, and risk appetite. Hence, there are various investment tools that allow them to invest according to their requirements and earn returns based on them. One such tool is a unit-linked insurance plan (ULIP).
ULIP plans provide the investor with the benefit of life cover as well as returns. When a person invests in a ULIP, a part of the premium is invested in various investment instruments, and the remaining amount is invested for life cover. Hence, by purchasing a ULIP, an individual can get financial protection and allow his/her money to grow. Furthermore, there are 4 commonly used types of portfolio creation strategies.
Wheel of Life Strategy
This strategy is created to enable investors to take higher risk in the initial years of investment by investing in the equity market. This is because a lot of investors have a high-risk appetite when they start investing. The investment made in the equity market can earn higher returns.
Initially, the entire investment is made in equity funds. The investment can be made in mid-cap funds, large-cap funds, etc. Furthermore, when the maturity date gets nearer, the investment in equity is decreased. The money is invested in debt funds, liquid funds, etc. to ensure the portfolio is stable. At maturity, the investment in equity is zero, and it is allocated to debt.
In this strategy, the price movement in the equity is tracked. According to this strategy, the investors should buy low and sell high.
Generally, in case of a trigger-based portfolio, the investment in equity is 75% and in debt is 25%. Furthermore, the fund manager will change the portfolio according to the markets’ movements. Typically, trigger events are 15% price movements in the investor’s equity investments.
Strategy Selected by the Investor
In such a portfolio, the strategy is selected by the investor. The investments can be controlled by the policyholder. The policyholder can select the asset allocation.
The investor can decide how to allocate the investment. Hence, he/she can choose to invest the entire amount in one fund or various funds across asset classes.
The investor can invest based on his/her risk appetite. Furthermore, based on the risk appetite and markets’ movements, the investor can change the asset allocation.
Automated Transfer Portfolio
An automated transfer portfolio strategy is created to give an investor the returns he/she needs while taking moderate risk. Initially, the premiums are invested in low-risk funds such as liquid funds, bonds, etc. specified by the investor. Furthermore, a specific percentage of investments will be switched to different funds at the start of every month. An investor can choose these funds based on his/her risk appetite and goals.