It is not advisable to invest a lot of your funds into insurance policies. Especially if those insurance policies are Ulips’ (Unit Linked Insurance Policies) based. The main reason being that excess of such investments tend to harm the growth of your returns.
As a prudent investor it is important for you to understand that the working of Ulips. When you sign up for a Unit Linked Insurance Policy, a portion of your money goes for your insurance and a part is invested in the market- mainly equities. Now, if the markets perform well, there are chances that you might benefit with higher returns apart from the protection plan. However, you cannot bet and risk your investments and assume that the markets will always be giving you returns. Sometimes, in the eventuality of a down run, you might risk the wipeout of all your investments, to such an extent that you might be forced to borrow debt like personal loan, home loan etc to finance your requirements. Apart from that, the value of your insurance cover will obviously suffer a dip.
To avoid any such mishaps, it is important for you to differentiate between returns generating scheme and insurance protection plans. If you have invested in any such Ulips, try to assess the costs of exiting such funds along with their performance and the tenors. Once that is done, try to exit such propositions and opt for a pure term cover wherein you benefit from the advantage of only an insurance cover and not anything else. If you have a good risk appetite, it is better you invest a part of your funds into equities which are aggressive in nature. In doing so, make sure that you stick to Systematic Investment Plans since that is the most preferred route for safely investing your hard earned money into.
Remember; never gamble with your life especially if you have dependents. Try to take an independent cover for yourself and for your family. A medical insurance that covers critical illness and general health requirements in order to save you from thick medical bills is desired. And such insurance policies are sure not to harm your portfolio rather provide you with ample protection.
Another important investment opportunity is to keep your funds intact in PPF. That is one such fund wherein you get excellent tax benefits for that 15 year period. Investment in PPFs also gives you the much required balance to your volatile portfolio. Move out from traditional investment avenues like FDs, and try to divert your savings into SIPs. Systematic Investment Plans help you invest your funds systematically in equities which also enables you to monitor the functioning of the particular fund in which your funds are being invested. Once you have managed to structure your portfolio, the next step is to diversify your portfolio. Make sure that you try to invest at least 40% of your income into savings. Rigorously saving in funds while you are young and are earning, is mandatory in order to build your corpus over Rs1 crore in the span of 15-20 years. For this you need to diversify your investments by investing in funds across all sizes – small cap, small-mid cap, mid cap, mid-large cap, large cap, structural funds, index funds etc, are the some of the wide choices you can choose from. Apart from this investing a portion into debt funds is also advisable. You can also opt for investing in Gold specifically through ETFs (Equity Traded Funds) can also be considered. But just see to that you do not exceed more than 5% of the total portfolio value.
What you need to ensure is that your portfolio needs to be monitored at least once every 6months to 1 year. If you have invested in certain funds for a long term, then it is advised for you to stay put in case of any market downfalls since this uncertainty is bound to fade over time.