Why ULIP investment is a big failure for some investors

Study shows ULIP investments are the best option for those who have a long term investment perspective of more than 10 years. ULIP product not only give you the best long term investment exposure but, it provide a required insurance coverage depends on the policy holder.

However, a large number of ULIP investors still failing with the product investment. They either not receiving the required profit or not able to meet the goals. They started with the product with enough long term investment focus, even though the lose was huge. Below are the major reasons why a ULIP product turns to a big loser for such investors.

1. Lack of product knowledge

A study clearly shows that 85% of ULIP buyers doesn’t have enough knowledge about the product. They might have heard the name ULIP from various sources but they are not at all aware about the structure or nature of the product. A blind approach to any investment product by hearing its name doesn’t give you profit but result you huge lose of money. In my opinion, most of the people buying the ULIP product because of the following:

a. Brand name of the company: Most people blindly trust on the brand name of the company who selling the ULIP products. Remember, a well known brand name of a company is not a guarantee the ULIP product it sells have the same quality or performance.

b. Blind advise from insurance Advisors: A solid factor take an investor to trouble by buying a wrong product. If an investor doesn’t has minimum required knowledge about the product and an advisor has enough conversational abilities, he can promote a wrong product easily with you.

c. Mind blowing advertisements on a product: This is another reason why an investor falling to choose an unsuitable product as an investment instrument. Remember, advertisement is only to promote the product and not providing guarantee to the product performance or returns. Entering to buy a product upon seeing a good advertisement will certainly cost you

2. Less focus on an investment goal

In our community, there is a common trend of investing of bulk amount to any product to save tax. ULIP is one among the category. The psychology here is to save tax by investing some product. Remember, such investment without proper study or goal will never give you profit. With any investment, investor should have a specific and clear goal. Once after identifying the goal, second is to select the right product upon your risk profile and investment time frame. Any action without a specified goal will never get success. ULIP is designed only for the investor who have long term perspective of 10 or more year. As a short term investment, this will not give you profit but the result will be erosion of your money. This is happening because of the product cost structure, compare with any other investment product, is very high.

There are various ULIP product available in the market. Investment plan, child plan, pension plan are some of them. Focus and goal of each ULIP product are different from others.

3. Never take care of the fund associated with and its performance

This is the big mistake an investor committing when dealing with ULIP product. Compare with traditional policies, ULIPs are entirely different. It is investment focused and any performance issue in the benchmark specified to that product can give you huge lose.

Less knowledge about the nature of funds associated with the ULIP, where the company investing your money, is the major bottleneck for you. An investor should aware about all the funds and the performance of each funds.

To avoid this huge and possible mistakes, you should be well aware about the benchmark for the product and information on fund performance in the previous years. Compare the performance with its bench mark to identify the out performer to invest. Remember, past performance is not at all a guarantee to future performance. Through monitoring of your portfolio and fund performance, at least once in an year, make you able to decide whether continue with the fund or switch it to another fund associated to the ULIP using the available switching options.

4. Never compare the ULIP product with its peers

This is an another mistake happening from a laggard investor. Trough this mistakes, he himself losing the chance to identify the best fund with best performance and lower cost. Before investing to any product, you should take this step to compare all the important parts of the product with the available products in the market with same focus.

Be a wise investor. Little thoughts will save you from big mistakes.

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