For those who are just beginning to experience market uncertainties, a market crash can be a nightmarish experience. It is human nature to take stock of short-term losses, sell everything and then stop any cash inflow into the market until everything settles down.

You couldn’t be more wrong!

What Do The Experts Say?

Seasoned market players have a field day “buying” during downturns, simply because that is when everything is available at rock bottom prices, leading to even better returns when things start getting better! With market analysts predicting a bullish Indian market in the near future, investors must take downturns in their stride and focus on long term financial goals instead.

Of course, one may say – “I am a small time investor and I can’t really risk my hard earned money without any guarantees”. You’re in luck, because we have just the right solution for you!

Invest in ULIPs

Unit Linked Insurance Plans (ULIP) are offered by insurance companies and combine the security of a term life insurance policy with the growth avenues offered by investments in debt and equity funds.

  • The annual premium paid against the policy is divided so that one part of it is utilized towards term coverage.
  • The remaining portion is invested in the market in funds of your choosing to maximize your ULIP returns.
  • Thus, ULIPs provide a security cover that ensures the nominee either the sum-insured or the fund value (whichever is higher), in the event of the investor’s unfortunate demise.

ULIPS Help You Control Your Exposure

You can choose a combination of debt, equity or hybrid funds to maximize your ULIP performance.

  • This combination can be decided by you based on your personal priorities and future outlook at that point in time.
  • However, unlike any other investment product, you can also switch funds and purchase new ULIP NAV’s as per your choice (the best plans don’t charge you until the number of switches cross a threshold).
  • So, during a downturn, you can choose to invest in safer debt funds and reduce your equity exposure. This helps you remain invested and control your losses, until the market catches up. You can then switch to a more aggressive equity fund.

ULIPs Provide You a Tax Advantage

This is a no-brainer.

  • Investments are tax exempt under Section 80C up to Rs. 1.5 lakhs. Also, because they are insurance products, ULIP returnsare also tax free (if your sum-insured is at least 10 times your annual premium, a requirement that most ULIPs already mandate).
  • This is especially useful when you plan to switch between funds to keep up with market uncertainties. As you jump from equity to debt funds and back, you can do so knowing that you have no extra tax liabilities!

ULIPs Encourage Long-Term Planning

All ULIPs come with a five-year lock-in period. So, when you invest in one, you are in for the long run. This horizon is important because it helps you ride through the highs and lows at the market over many years, thus helping your fund managers ensure the best ULIP performance. No other product in the market can ensure you maximum returns and a security blanket for handling life’s curveballs.

Conclusion

Keeping everything else aside, if there’s just one thing that you take away, let it be this – It is important to buyin a bear market! This gets you a higher number of ULIP NAVswhich will boost your overall returns once the markets start climbing.

By Chakraborty

Dr Chakrabarty is the Chief Innovation Officer of IntuiComp TeraScience. Earlier she was Assistant Professor of Delhi University, a QS ranked university in India. Before that she has held research positions in IIT Mumbai, IIT Chennai and IISc Bangalore. She holds 2 patents and over 20 research publications in her name which are highly cited. Her area of research is in smart technologies, integrated devices and communications. She also has a penchant for blogging and is an editor of Business Fundas.