Wealth planners believe that the trick to building a sizable retirement fund is to gradually develop an equity portfolio throughout one’s professional life in an intelligent manner. If you are just a few years away from retirement and have not planned financially for it, then you should ideally allocate more towards equities for aggressive wealth creation. The stock market, however, is suitable for individuals with higher risk tolerance.

Anyone who has invested their money in the markets will tell you that it is not impossible to predict and forecast market conditions accurately. However, one fact is quite clear- equities are the best bets for earning higher returns and building your retirement portfolio. There are multiple avenues through which you can invest in equities. You can buy stocks directly, invest in a suitable mutual fund, and you can also use a ULIP policy to accumulate wealth for retirement. So let us understand equities and focus on wealth creation through a ULIP policy.


An Equities Case

Based on several reports analyzing diverse market instruments and assets, equities have generated the highest possible returns during inflation, although they have higher volatility levels. For example, stocks have sometimes generated returns of up to 19% per annum, compared to just 8.8% from bonds and even lower from fixed deposits. That too in a period where the average inflation rate stayed firmly at 6%.

On the other hand, stocks have higher risk levels than all financial assets. Hence, most investors fear taking the plunge directly into the equity market. Volatility may also work in your favor at times or completely do the opposite. It may force you to sell in a panic (and at a loss) during any downturn and also benefit you if you are buying units in more significant numbers at lower prices (for long-term investors).

How Much Should You Invest?

Those planning to retire within 30 years or lower may allocate 50% of assets for equities. But, of course, this will come down over time.

Are Equities Really That Risky?

Many believe that stocks are very risky, although high returns are not possible without taking some risks. Take an example of a bank FD. Your returns are guaranteed, and there are no risks, but of course, the returns will not surpass long-term inflation. It may appear that Rs.1 crore at retirement is enough, but it may not be so, considering the scorching pace of inflation. So, yes, equities are substantially risky, but they can help you achieve several goals as well. After consulting with experts, you need to find the right balance for your portfolio.

Also read: Health Insurance Policy for Different Stages of Life

Opportunities For Investing In Equity

Aside from investing directly in stocks, one can also consider diversified equity mutual fund schemes. These should be spread throughout numerous segments, including mid-cap, large-cap, and small-cap funds. Balanced funds are also necessary for the portfolio. At the same time, one can consider investing in a ULIP for greater security as well. You can use a ULIP calculator to work out your anticipated returns for a specific time period and investment amount.

Can ULIPs be considered an option for Retirement Planning?

Unit-linked insurance plans are a hybrid financial product that combines life insurance with market-linked investments. People require financial stability at retirement and funds to cover their medical, lifestyle, and other expenses. ULIPs are ideal retirement options for the following reasons:

  • ULIPs provide an opportunity to invest in equity funds. Depending on your financial objectives and risk appetite, you can choose equity funds along with debt funds, liquid funds, or hybrid funds.
  • You can periodically switch funds to minimize your risks. You can allocate more to equity funds in case of a market boom, while a downturn may mean a higher allocation to debt funds.
  • Long-term equity investments through ULIPs may generate a sizable corpus for retirement
  • You also get accompanying life coverage throughout the policy tenure. This means that your family members are financially safeguarded in the event of your unfortunate demise in this period as well.

Hence, the unique mix of insurance and investment makes ULIPs the best option for investing in equities without the huge risks of direct stock market investments. They are also easier to manage in comparison to mutual funds at times. If you have delayed your retirement planning and wish to make up for the lost time, investing in equities can be an ideal solution for you.

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