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LIFE INSURANCE

All You Need to Know About Switch Funds Option in ULIPs

Inderpal Ahluwalia 16 October 2017
4.2 (5 votes)

ULIP is a life insurance product offering two-fold benefit. It provides risk cover along with investment options. The premium paid is invested in the fund of your choice, which in turn is invested in a number of qualified investments such as stocks, bonds or mutual funds by the Insurance Company.

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As a single integrated plan, the investment part and the protection part can be managed according to requirements and the needs of the policy holder. This way, it provides a protection from the insurance cover and earnings on your investment like a mutual fund.

While investing in ULIP you will have the liberty to switch funds. It lets you tailor your ULIP investments according to your preferences. The switch option makes ULIP stand out as it gives you the freedom to manage your investments in the way that best suits you.

How does fund switch work in ULIP?

Your money in ULIP can be invested in different sorts of equity and debt funds. As an investor, you have the choice to move between different types of funds floated by your insurance company to suit your needs. This facility offered by the insurance company in ULIP investment is called Fund Switch. So, if you are not happy with the returns from your ULIP, you can move to equity fund from your debt fund using Fund Switch. In the same manner, if you want a steady income flow, switch to debt funds. If you want mixture of both, you can split the proportion of debt and equity funds as per your requirements.

How to get fund switch option started in ULIP?

All you need to do is register to avail this option which is fairly simple. The registration process will be done by going to the website of your insurance provider. If you want to do it online then you can get in touch with your agent and get the registration form delivered to your home. After filling the form you can submit it at the nearest branch or give it your agent for submission. You will need a self-attested photo identity proof attached when submitting the form. This photo identity can be your valid passport, driving license, Aadhar card or Pan card.

What benefit will I attain from Fund Switch in ULIP?

ULIP stands out from other insurance products as it gives the opportunity to get returns on your investment. The switch fund gives you an added benefit to make healthy returns through volatile market conditions. As you know, the stock market goes through highs and lows. If you want to make returns irrespective of the market cycle, you will have to modify your investments regularly. It does not mean you need to redeem your ULIP units but you can make alterations to your ULIP funds by using the switch option.

For example, suppose 70% of your premium investment was in debt and 30% in equity. If market condition is turning positive, then that is the time to switch your funds to equity schemes, and only put 30% in debt schemes as a safe investment. Once, the market cycle turns negative, you can play safe again and exit from equity schemes and invest majorly in debt. Freedom to make such changes can help you take advantage of all kinds of market phases and optimize your returns.

It’s just not about external factors that will determine your switch fund options. Your life cycle stage will also play an important role in your decision of how you want your investment portfolio. If you are young and don’t have any dependents or any other responsibilities or obligations then you can take a risk in your investments. In further stages of your life, you might need to play safe because you may have dependents at that time so you can switch your fund allocation more towards debt funds.

How much does switching cost in ULIP?

Some companies offer unlimited switch options in ULIP, others have a cap of 5 to 10 switches. Beyond that, a fee of Rs.50 to Rs. 500 is charged per switch.

To make switching work, you need to constantly review and monitor your plan’s NAV, as market conditions frequently change. If fund switch option is used properly you can make good returns on your investment.

Recommended Read: 5 Popular Myths about Investing in ULIP

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