Balanced asset allocation can help you maximize risk-adjusted returns while controlling volatility



The pandemic has impacted lives and livelihoods in many ways, from job losses and deaths to rising prices and depleting savings.

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It has also led to uncertainties about returns and limited investment options, often providing valuable lessons on how to invest your hard-earned money, achieve long-term savings goals, as well as the importance and versatility of life insurance as a tool to achieve it.

Whatever the difficulties, it is imperative that you develop a financial savings plan that provides financial security for you and your family.

We spoke to Gautam Sinha Roy, Senior Vice President and Fund Manager – Investment, ICICI Prudential Life Insurance Company Limited to understand the importance of investing in ULIPs:

Despite all the challenges posed by the pandemic, India’s economy has shown amazing resilience and rebounded, leading to a strong rally in the stock markets.

However, this increase is also accompanied by volatility. So, if you have a clear understanding of your risk appetite and have sufficient knowledge of the financial markets, then unit-linked insurance plans (ULIPs) offered by life insurance companies are a good option. to help you make those investments and reach your financial goals. .

What are ULIPs and how do they work

ULIPs are market-linked insurance plans that offer a combination of life and investment insurance and help you build wealth systematically.

The very design of ULIPs allows you to stay invested longer with the flexibility to choose the premium payment frequency that best suits your portfolio – monthly, quarterly, semi-annually or annually.

In addition, these products are extremely transparent. Financial goals, for example, can include a child’s higher education or building a retirement corpus and ULIPs can get you there. However, for long-term investment products, it is recommended to buy ULIPs with a horizon of at least 10 years.

When purchasing a ULIP, you have the flexibility to choose the asset allocation strategy that best suits your ability to take risks.

Net premiums are allocated according to your chosen asset allocation strategy and this investment corpus is managed by seasoned fund managers.

However, in a connected world that is constantly disrupted for multiple reasons, choosing a balanced asset allocation can generate superior risk-adjusted returns.

Let’s understand balanced asset allocation.

Cross-checking the performance over seven to ten years of a ULIP plan can give you a fair idea of ​​the returns you can expect. The returns offered can also be compared to indices like Nifty and Sensex.

For example, as of June 30, 2021, investing in the ICICI Prudential Life Opportunity Fund over 7 years and 10 years has provided better returns than the benchmark (BSE 200) for the same period.

Even after the global financial crisis of 2008, markets finally recovered and reached new highs.

The mantra being – “Market time, not market time”. ULIPs provide a safe, transparent, and efficient route to building wealth and achieving long-term financial goals, as long as you stay invested.

Balanced asset allocation and its advantages

Having a balanced asset allocation strategy, in simple terms, is about spreading your risk between the two main asset classes – stocks and debt. Smart investors never put all of their eggs in one basket.

The major life insurance companies offer balanced funds that can invest 65% + in stocks and the rest (up to 35%) in debt.

Although stocks can be volatile, they have the ability to generate returns above inflation, while investments in debt offer stable returns.

In other words, you can take advantage of the upside potential of the stock markets while still enjoying the stable returns offered by debt instruments.

Given the prevailing economic conditions, a balanced asset allocation strategy can give you the best of both asset classes.

ULIPs with a Balanced Asset Allocation Fund offer you a great way to take advantage of India’s growth and build long-term wealth.

The flexibility to easily adjust asset allocation based on market conditions will allow you to maximize risk-adjusted returns while controlling volatility.

(Disclaimer: The views / suggestions / advice expressed here in this article are solely by investment experts. Zee Business suggests that its readers consult their investment advisers before making a financial decision.)



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