The last few years have seen a rise in financial literacy amongst the youth of the country. Armed with knowledge from the internet and a willingness to create a financially stable future for themselves, the youth of this generation are looking beyond the usual term deposits when it comes to financial planning. Though this is a good sign, one must be careful when making any important decisions regarding money. Choosing the right financial instrument is the first step in this journey. For those looking for the right combination of security and risk, a ULIP may be the apt option. A ULIP policy can be a rewarding investment for young individuals, given that they approach it the right way. Here’s how they can do that.
What you should do while investing in ULIPs
Go for a high-risk approach
The best part about ULIPs is that they can be a suitable option for all types of investors. As a young person, the chances are high that you have very few or no dependents. This also helps you save a good amount of money when it comes to spending on daily expenses. Thus, your risk-taking capacity should ideally be high at this stage in life. The best investment option for you would be equity funds. They yield higher results and are considered riskier than other types of funds.
A ULIP calculator can help you get an estimate of the difference in the returns from equity funds vs debt funds.
Take a long-term outlook
Even though immediate gratification may be the norm amongst the youth today, when it comes to investment, taking a long-term outlook is the best. The longer your investment stays in the market, the more will be the returns you will get to enjoy. The benefits of compounding are truly amazing. Not only does your principal invested amount grows but the interest earned on it grows as well.
ULIPs have a mandatory lock-in period of five years. This is an ideal time duration for the individual to develop financial discipline and for the investment to earn good returns. Even though you can withdraw the money after the end of the lock-in period, it is advisable to keep investing in your ULIP for a minimum of 10 years.
To best understand the returns you can achieve in a particular duration, you should use a ULIP calculator.
Plan and calculate everything beforehand
If you want to ensure that you have the right amount of finances to meet your financial objectives, ensure to plan and calculate everything beforehand. Use tools and resources to understand the returns you can expect in a particular duration and how much you should invest for the same.
What you should avoid while investing in ULIPs
Avoid buying more coverage than you require
A life insurance policy is a prudent purchase at this age because you are incurring lower premiums and building a larger corpus. However, this does not mean that you opt for extremely expansive coverage. Most term policy add-ons are designed keeping in mind a householder or a person in their 40s/50s. There are chances that you do not require these add-ons. Therefore, one should avoid buying them to keep the premiums low.
Avoid taking an overcautious approach
In order to prevent losses on their investment, many young people often end up becoming overcautious when it comes to their investments. While a bit of caution is healthy, practicing too much of it can lead to you potentially losing out on high returns. Rather than avoid risk, ensure that it is spread wide across your investments by diversifying your portfolio.
Do young people require a life insurance policy?
Many young people may be wondering whether they should buy a life insurance product at all. The correct answer is yes, they should. Young people are relatively healthy and therefore, the premiums are very low at this stage. Plus, one can never be too sure about what might happen in the near future. Medical issues are becoming increasingly common amongst the youth today. Buying life insurance, whether it is a ULIP or a term policy, means that you are securing the future of the family that you will have one day.
Another important piece of advice is to always read the terms and conditions of your policy before investing. Get all your doubts cleared by the insurer and a financial expert before going ahead with the plan.