When you invest in ULIPs, to create a versatile portfolio, it is best to spread your risk and your investment across different asset classes. The primary determinant of risk and return in a portfolio is asset allocation. This ensures that your return gets balanced out - compensating for any loss made on any asset class with profits made by another. This therefore, reduces the overall risk of your investments. But more importantly, ULIPs give you the flexibility of free switches between funds to help you effectively manage the portfolio asset allocation.
Selecting between the debt and equity ratio depends on your life stage needs. As a thumb rule, if 100 is the total investment you must deduct your age from this and invest the remainder into equity. For example, if you are 30 years of age then you should invest (100-30) 70% in equities and 30% in debt.
Be intuitive and switch from more risky equity funds to less risky debt funds as you get older.
If you feel that you don't have the time or the know-how to actively monitor the fund movement and manage your portfolio you can try using the programmed switching option available with ULIPs. For example, you may decide to switch a fixed amount monthly from one fund to another fund on a fixed date.
If equity markets look significantly overvalued and expensive, you may switch from equity funds and only switch back when equity markets correct substantially. Many insurance funds offer auto-trigger options that allow for automatic switching based on the behavior of the underlying assets in the fund.
Unit Linked Insurance Products (ULIPs) are different from the traditional insurance products and are subject to the risk factors. The premium paid in the Unit Linked Life Insurance Policies is subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. Please know the associated risks and the applicable charges from your Insurance agent or the Intermediary or policy document of the insurer. In ULIP, the investment risk in the investment portfolio is borne by the policyholder. The linked insurance products do not offer any liquidity during the first five years of the contract. The policyholder will not be able to surrender/withdraw the monies invested in linked insurance products completely or partially till the end of fifth year.