Can your ULIP investment withstand the pandemic crisis?
Novel Coronavirus or COVID-19 has taken the world by a storm. Affecting the entire human race across the globe, it has witnessed mortality numbers running in thousands across the world. This has led to COVID-19 being declared as a global pandemic by the World Health Organisation.
Every global event is seen to impact the stock markets and all its ancillary investment avenues. Like the previous pandemics SARS, Ebola, Swine Flu, Coronavirus is no exception. This impact is seen across all sectors of business, and all major global stock markets have seen a correction in indices upwards of 20%. The Indian scenario is no different. Sharp corrections have been witnessed in this new financial year, and most investments are at decade-low levels.
ULIP is one such investment that has seen the impact of this economic downfall. Unit linked insurance plan meaning where you get a scope for earning returns while you pay premiums for life cover. There are double benefits when it comes to a ULIP. You can use a ULIP return calculator to estimate your fund value with a particular growth rate. Meanwhile, your premium cost covers your life for death benefits to your family.
So what does one need to do during such times of market corrections?
There are four significant categories of question that arise, let us address them below-
Do I redeem now and invest later?
With the current investments in ULIP, it would not be the best time to withdraw from the fund considering the returns at its lowest. Moreover, it is complicated to perfect the timing in stock markets for re-entry. The saying ‘time in the market makes more money than timing the market’ supports the advice of the financial gurus to hold on and not withdraw. The benefits from correction of the market scenario are more than booking losses right now.
Should I invest more?
With the valuations of funds at an absolute rock bottom, it can always be an added benefit to purchase newer units of ULIP. It will fetch you additional units at an affordable price. If you have an existing unit-linked insurance plan, investing more will average out the purchase value. It can be the right time to switch from a debt fund to equity fund as equity funds will have higher returns during the foreseeable future.
The ULIP charges are regulated by the Insurance Regulatory and Development Authority of India (IRDA) and are capped at specific percentages making it a fruitful investment in such stressful times.
Is it advised to wait for further correction in values?
If your current financial portfolio permits you to invest in a unit-linked insurance plan, waiting might not be the best option. It is because a sharp increase is followed after steep market corrections. In waiting for further revisions, one might lose out on the opportunity to invest.
Can doing nothing be useful?
It is normal not to make a move. Staying put can be a good option too. You need to evaluate whether your fund has the growth prospect. Further, waiting for the corrections to take place can be a kind of stability strategy. One does not need to make any additions or redemptions observing the market trend.
It may be the case that the fund in which you have invested shows the highest growth prospect and others are switching to or investing in it. At such times, you can estimate your returns with an expected growth rate using a ULIP return calculator.
Keeping in mind the above points, one can ensure your ULIP plan withstands the pandemic. Make sure you are aware of the various ULIP chargesthat are levied by different insurers before buying.