Market correction offers Ulip investors chance to rebalance their portfolios based on risk appetite

As market conditions improve or stabilise, investors, especially those with a higher risk appetite, can gradually shift their allocation towards mid-cap and small-cap funds to capture higher growth potential. However, those with a lower risk appetite should focus on preserving wealth.

They should move a larger part of their investments towards debt funds to reduce market exposure. As market conditions stabilise, they can shift their investments towards more aggressive equity-oriented funds such as mid-cap or small-cap funds for higher growth opportunities.

Flexible Ulips

The flexibility to dynamically rebalance the portfolio in Ulips ensures that investors can stay invested through different market cycles, manage volatility more effectively and align investments with their risk profile and financial goals. Doing this can seamlessly help investors through free fund switching, without any additional cost.

“The ability to actively rebalance in Ulips ensures that the investor’s portfolio remains aligned with both market conditions and risk profile, without the need to exit the investment,” says Sameep Singh, business head, Savings, Policybazaar.com.

Aggressive investors can do some rebalancing now. “If an investor has higher allocation in debt portfolio then he should switch units to equity as it is a great opportunity as unit value has gone down by 10% this year,” says Shilpa Arora, co-founder and chief operating officer, Insurance Samadhan.

Investors can go for top-ups to accumulate more units at lower net asset values. Top-ups also will help in enhancing returns post market recovery. “However, this strategy is suitable only for investors with surplus funds, long-term goals and having risk-taking ability,” says Sarita Joshi,head of Life & Health Insurance, Probus.

Cost structure

There are three types of charges — premium allocation, policy administration and fund management charge. Premium allocation charge, which is 4-6%, is deducted from the premium before it is invested in the chosen funds. Many new-age Ulips are designed to be far more cost-efficient, with several offering zero premium allocation charges and zero policy administration charges. This makes Ulips attractive for long-term goal-based investing.