What are the Different Types of Investment Funds under ULIP?

A Unit Linked Insurance Plan (ULIP) is a popular choice for individuals who are looking for an investment option along with insurance. However, there are different types of funds in ULIP where you can invest. Keep reading to know the essential features of each so that you can select the right one for you.

The various types of ULIP funds are as follows:

• Equity Funds: In this type of ULIP fund, a part of the insurance premium is used to invest in purchasing shares of different companies. As the price of the shares increases, there is a subsequent increase in its returns. Alternatively, if the prices of these shares diminish considerably, you can face immense losses. This is a popular investment option that can bestow you with substantial capital appreciation and wealth creation if you have the necessary risk appetite.
• Debt Funds: For this ULIP fund type, the insurer invests your money in different types of debt instruments. These include debentures, Government bonds, corporate bonds, securities, and fixed-income bonds. You cannot expect great returns from this type of fund. Nonetheless, the relieving part is that if the value of these bonds goes south, you will not have to suffer much loss.
• Balanced Funds: This is a combination of both equity and debt funds. Here, your insurer invests almost equal amounts in both these funds. This ensures that returns and risks are evenly spread out. For instance, if the value of both shares and bonds increases, then you can get substantial returns from both. However, if the price of shares decreases and the price of bonds increases, you can still expect profit to a certain extent. Conversely, if the price of shares increases and the price of bonds decreases, you can be on the profit side of the balance. So, you can see that in all three of these scenarios, you can receive varying amounts of profit.
• Growth Super Fund: In this type of ULIP fund, the insurer invests money in both equity and debt in the ratio of 7:3. Since the investment in equity is high, you can expect substantial profits from this investment. Conversely, if the prices of shares decrease, you can incur extensive losses. This is so because the fluctuation in the equity funds majorly controls the gain or loss.
• Growth Fund: In this ULIP fund type, the insurance company invests the maximum part of your investment in equities. This is about 20% to 70% of the amount that you are investing. Conversely, the amount invested in debt instruments is about 30% to 80%. Hence, it is a somewhat risky investment owing to the high volatility of equities.
• Conservative Fund: In this type of fund, your insurer invests about 75% to 90% in debt funds and the remaining amount, that is, 10% to 25% in equity funds. Since the majority of investment lies in a debt fund, you will not have to encounter massive losses even if the prices of shares in the equity fund decrease. However, you will not be able to incur substantial profits from your investment. So, if you want to stay away from the volatility of equity funds, you can choose conservative mutual funds as a suitable option.
• Liquid Funds: Liquid funds are somewhat similar to debt funds as it also involves investment in Government securities, commercial papers, and treasury bills. However, these fixed-income instruments have a maturity period of up to 91 days. Also, the Net Asset Value (NAV) of this type of fund is calculated only for 365 days. Considering the fixed-income instruments, you can deduce that you will attract minimal losses in case their value diminishes. Additionally, for this type of mutual fund, you can process withdrawals within 24 hours.
• Bond Funds: This fund involves investments only in government bonds, corporate bonds, and fixed-income bonds. The returns that you can get on investing in these bonds are not much. However, the risk involved is minimal as well. Hence, you can invest in these funds if you want to avoid substantial risk.