These days, with life’s uncertainties at their pinnacle, it is pivotal to have not one but several backup plans. You need to plan and grow your finances effectively, prepare an emergency fund, and protect your loved ones against financial uncertainties in case of your demise.
Insurance investment plans are one of the surest ways to achieve these goals. In India, NRI investment plans are available even for those who live and work abroad. You need to evaluate your risk levels and build a reasonable portfolio.
What are investment plans?
In this day and age, investment plans are one-stop solutions to insuring your life to protect your family and to grow your wealth simultaneously. Investment plans essentially allow you to choose a sum assured that is paid as a death benefit to your beneficiaries in the event of your demise during the policy tenure. But it has additional benefits.
When you choose the policy tenure and sum assured, the insurer derives a suitable premium for your life insurance plan. Aside from these basic benefits, they also allow you to invest your money through them into equities and debt funds in Unit-linked markets and mutual funds. You can choose the kind of instruments in which you wish to invest based on your risk appetite. The insurer adds more premium to your policy, and the additional premium is invested. You can withdraw the profits from these investments in times of emergency.
Whether you choose domestic or NRI insurance plans, the insurer will shortlist investment options based on your choices. Equities usually come with a higher risk factor but are also more likely to yield higher returns. Debt funds, on the other hand, offer steady but low to medium profits at low risk. You can choose either or mix them up for a balanced portfolio of your insurance plans.
How to evaluate the risk level of your portfolio?
Since insurance plans invest your money in the market through direct unit-linked instruments and mutual funds, it may seem risky, especially in times of economic crash. NRI investment plans, in particular, may seem risky as you are unable to monitor the market in real time. But there are certain steps that you can take to evaluate the risk level of your investment plans and make smarter decisions.
- You can use an online calculator such as the ULIP calculator to determine your risk levels. Toggling over the types of available instruments, i.e., equity and debt, will show you how much money you will be investing in each. The higher your equity investments, the higher the risks. You can balance them by dividing your investment plans equally in both, or if you wish to lower your risk further, you can invest the majority or all of your money in debt funds.
- You can choose the amount of returns you wish to make from equity and debt instruments. The investment vs return on investment should give you a clear picture of the risk levels. If the investment amount is low but the returns are volatile, then the risk levels are high. Conversely, if the investment and ROI are on par, then the risk levels are low to moderate.
- Examine the investment plans in which you invest your money. Even for NRI investment plans, you have options available in ULIPs, endowment plans, money-back plans, provident funds, sovereign gold bonds, fixed deposits, and more. Some of these do not offer options for high ROI but do guarantee steady returns. The risk levels in such investments are generally low.
When evaluating the risk levels in your investment plans, a general rule of thumb is to understand the instrument. Government funds, fixed deposits, bonds, and other such safe instruments that offer guaranteed returns are usually safer. Come hell or high water, these funds keep generating the same amount of ROI as the returns do not account for the risks that the fund managers are taking or the profits generated from them.
Equities, on the other hand, are directly impacted by the market. In times of economic crash, the equities may lose value rapidly, which can be a huge risk, especially if you are in a financial crunch. However, if you can ride it out, the market will rise again, even if it takes a few months to a couple of years. Investing in equities is definitely riskier, but keeping your investments long-term without panicking allows you to yield much higher profits. Once the instruments start stabilising and generating returns, it is blue skies everywhere.
Conclusion
When investing your money in general or NRI investment plans, choose your portfolio based on your risk appetite. If you wish for steady profits, lower-risk instruments may serve you better. However, if you are open to higher risks for higher returns, exploring equities in your investment plans may be more fruitful.
Anantha Nageswaran is the chief editor and writer at TheBusinessBlaze.com. He specialises in business, finance, insurance, loan investment topics. With a strong background in business-finance and a passion for demystifying complex concepts, Anantha brings a unique perspective to his writing.
