How to deal with financial markets risk in ULIPs
ULIPs are Unit Linked Investment Plans.
Insurance companies offer these as a two-in-one product. These offer insurance and investment.
For those who came late, we have been talking about how the Coronavirus pandemic is putting the economy and the financial markets at risk.
This means that your ULIP is at risk too.
There are two ways of dealing with this risk.
The extreme option
When you invest in a ULIP, your money is locked up for five years.
If those five years are up, you could think about redeeming the investment. But be careful about this as you will lose the insurance cover as well.
The redemption proceeds from a ULIP investment could be placed in fixed deposits and in overnight mutual funds.
The middle path
Typically, ULIPs either invest your money in equity-type assets or in debt-type assets.
Check your ULIP statement to see what you have. Or message us on Telegram if you need help identifying the type.
If you have opted for equity-type assets in your ULIP, this is a good time to switch to debt-type assets.
Again, check if your ULIP allows you to switch. There may be restrictions.
Getting back on the horse
Once you redeem or switch away from equity-type assets, when do you go back to them?
That is a really hard question. We don’t think anyone can see the future. And we don’t try and time the market. We don’t know when markets will bottom or when they will recover.
But here are some common-sense ideas we will employ when getting back on the horse.
- Do jobs and income flows feel secure? For friends and family? Right now income and jobs seem to be on thin ice. Once those are on a secure footing, we would not mind taking risk in the equity markets.
- Does the economy seem to be getting back on track? Are businesses open? Are people back in the office working? Are they back in bazaars buying things? This may be hard to gauge. So one may get back into the equity investment gradually and not in one fell swoop.
- Does the stock market look like it has taken a battering? As a wise man said, be greedy when others are fearful. If folks around you swear they will never ever invest in the equity markets, that is a good time to start dribbling money in.
- Follow our blog posts and our Telegram channel. We’ll be sure to tell you once we start getting back into the equity markets. Not that, that is any guarantee of doing well financially. But misery loves company. 😃
This is meant to help you think about your money. Please speak to your advisor when making a decision.
