4 go-to ways of portfolio management in ULIPs

When it comes to investing in Unit-linked Insurance Plans (ULIPs), choosing the right investment strategy is crucial for maximising returns and minimizing risks. Unlike traditional insurance plans, ULIPs provide the flexibility to invest in various market-linked instruments such as equities, bonds, and money market funds. But how do you ensure that your investment grows while staying aligned with your financial goals?

Effective portfolio management within a ULIP can be the solution. In this blog, we’ll explore four tried-and-true portfolio management strategies that will help you manage your ULIP investment effectively. But let’s first understand the basics of portfolio management.

What is Portfolio Management?

Portfolio management is the process of strategically selecting and managing various investments to achieve a specific financial goal. This process involves assessing various asset classes like equities, debt, and real estate, with the primary aim of balancing risk and return based on your investment objectives and risk tolerance.

Specialties of Portfolio Management in ULIPs

ULIPs allow you to invest in a variety of market-linked instruments like equities, bonds, and money market instruments, all while providing life insurance coverage.

Some of the core features that make portfolio management in ULIPs special include:

1. Flexibility and Control: ULIPs offer investors the flexibility to switch between different funds based on changing market conditions or personal financial goals. This can be usually done online, providing easy access and control over your investment choices.

2. Tax Benefits: ULIPs provide tax-saving opportunities under multiple sections of the Income Tax Act. Portfolio management within these policies ensures that your investments continue to grow while also benefiting from guidance by portfolio managers for tax exemptions.

3. Transparency: You can track your ULIP’s performance and the underlying asset allocations with ease. Most insurers offer an online dashboard where you can monitor your investment growth, making it simpler to manage your portfolio effectively.

Comparison: Insurer-Managed vs Self-Managed Portfolios

One of the first decisions you often need to make when investing in a ULIP is whether you want an insurer-managed portfolio or if you prefer to take control with a self-managed approach. Let’s break down the key differences between these two types of portfolios.

Insurer-Managed Portfolio: In an insurer-managed portfolio, the insurance company or fund manager manages your ULIP investment. Based on your risk profile and financial goals, the insurer allocates your funds across a range of equity and debt options. This is a convenient choice for those who prefer a hands-off approach, trusting experts to handle the investments.

Self-Managed Portfolio: On the other hand, a self-managed portfolio offers you complete control over your ULIP’s investments. As the policyholder, you decide how to allocate your funds between equity, debt, and liquid assets. While this provides greater flexibility, it also requires more knowledge and time to track market conditions, adjust asset allocations, and manage risk.

4 Portfolio Management Strategies for ULIPs

Once you’ve decided whether you want a self-managed or insurer-managed portfolio, it’s time to consider strategies to help optimize your ULIP investment. Here are four effective strategies that can help you manage your ULIP portfolio successfully:

1. Systematic Transfer Strategy (STS)

• What: The STS allows you to make a lump-sum investment and gradually transfer funds, for example, from a liquid fund to equity funds.

• How: Initially, your money is parked in a low-risk liquid fund, and each month, a portion is transferred to equity funds, taking advantage of market conditions.

• Why: This strategy allows you to invest more in equity when markets are low and less when they are high, ensuring that you benefit from market fluctuations while managing risks effectively.

2. Return Protector Strategy (RPS)

• What: The RPS is designed to gradually move your funds from equity to debt as you near your financial goals, reducing exposure to market risk.

• How: Set a threshold for your equity gains. Once this threshold is reached, the excess returns are automatically moved to safer debt funds.

• Why: As you approach your goal (e.g., retirement or building a corpus for your child’s college education), you might want to reduce the portfolio risk. Additionally, your risk capacity might also decrease due to age, and this strategy helps protect the accumulated gains in equity investments.

3. Auto Fund Rebalancing Strategy (AFRS)

• What: The AFRS involves setting a fixed asset allocation between equity, debt, and liquid funds, with automatic rebalancing occurring at regular intervals.

• How: The portfolio can be automatically rebalanced quarterly to maintain your desired asset allocation, regardless of market conditions.

• Why: This strategy helps mitigate risk and ensure that your portfolio maintains the right mix of assets to achieve your goals, even during volatile market periods.

Let's say you started with a 60:40 equity-debt allocation. Over three months, stocks performed well, and now your allocation is 70:30. The rebalancing strategy might involve selling some of your equity stocks and using the proceeds to buy more debt instruments, bringing your allocation back to 60:40.

4. Safety Switch Strategy (SSS)

• What: The SSS is used in the last few years of your policy to protect your accumulated gains. This strategy can be combined with the other three strategies mentioned earlier.

• How: Over a period of four years, the strategy gradually shifts your investments from equity and debt to liquid funds.

• Why: This strategy minimizes exposure to market risk, ensuring that your gains are protected as you approach the maturity of your ULIP.

Now, let’s explore a popular ULIP in the market that lets you explore these strategies and cover several other management benefits. The ULIP we will be briefly discussing is HDFC Life Sampoorn Nivesh.

Key Benefits of Sampoorn Nivesh

HDFC Life Sampoorn Nivesh is a versatile Unit Linked Non-Participating Individual Life Insurance Plan that caters to your financial protection needs while offering robust investment opportunities. Here are some of the benefits:

1. You have the flexibility to choose from 14 different funds.

2. The plan offers three premium payment options—Single, Limited, or Regular.

3. With three convenient benefit options, you can customize your payout structure to suit your needs.

4. HDFC Life Sampoorn Nivesh rewards your commitment with loyalty additions of up to 1.8 per cent of the average fund value after the 10th policy year.

5. By investing a higher premium amount, you can benefit from reduced premium allocation charges.

6. This plan offers tax advantages under Section 80C and 10(10D) of the Income Tax Act, 1961.

Final Thoughts

Portfolio management in ULIPs is a powerful way to align your investment strategy with your financial goals while mitigating risks. Whether you prefer systematic transfers, auto-rebalancing, or strategies to protect your returns, the flexibility offered by ULIPs can help you adapt to changing market conditions and life stages.

For those seeking a plan that combines comprehensive portfolio management options with robust benefits, HDFC Life Sampoorn Nivesh stands out as an excellent choice.

Explore the advantages of HDFC Life Sampoorn Nivesh to see how it can enhance your portfolio and secure your financial future.

(This article is part of IndiaDotCom Pvt Ltd’s Consumer Connect Initiative, a paid publication programme. IDPL claims no editorial involvement and assumes no responsibility, liability or claims for any errors or omissions in the content of the article.)