Fund-switching Option in ULIP Explained

Unit-Linked Insurance Plans (ULIPs) are life insurance policies with the added benefit of wealth creation. The investment part of ULIPs comes with multiple flexible features that offer you more control over the policy. Fund-switching is one such facility. Here, we explain this feature. However, first, you need to understand how ULIPs work.

How ULIPs function

After purchasing a ULIP, you must pay a regular premium for the policy’s entire duration to keep it active. The insurance company deducts applicable charges and invests the remaining amount in a variety of equity or debt funds. Over time, your capital grows into a substantial fortune, allowing you to accomplish your financial goals.

A unique feature in the policy is the fund-switching option. It lets you reallocate your investment among ULIP funds as per your needs.

How fund-switching helps

The fund-switching facility permits you to re-evaluate your investment decision and make strategic changes when required. ULIPs are market-linked investment instruments. Their performance depends primarily on the financial market. With fund switching, you can shift your money among equity, debt, and liquid funds to either maximize returns or secure your investment, depending on the market conditions.

Additionally, with fund-switching, you can make alterations to the ULIP investment based on your changing risk tenacity. While buying a ULIP, the insurance company allows you to select if you want to put your money in equity or debt funds. If you are willing to take a few risks to grow your capital faster, equity-based funds will prove helpful. If you want to play it safe, debt-based funds will be the right choice. If your risk appetite changes with time, you can alter among the options using the fund-switching feature.

Here is a list of strategies to use the fund-switching offering to your benefit.

  1. Switch when the market becomes volatile

As already explained, the ULIP performance depends on the financial market. Hence, you must readjust your investment strategies with the fund-switching facility, depending on the market situation. For example, if the market begins to fluctuate, it can become risky to keep your money in equity funds. This may result in significant losses. In this scenario, you can move the investment to safer debt funds. If the market starts to perform well again, you may shift the capital to equity options to maximize the return.

  1. Switch depending on the fund’s performance

Both equity and debt-based funds include a variety of assets. The ULIP fund value depends on the assets’ performance. If at any moment you find that a particular fund is not faring according to your expectations, you can use the fund-switching feature to invest in funds that are performing better. This way, you can manage your investments to some extent, ensuring that you do not have to suffer huge losses.

  1. Switch when you meet your goal

When you make a ULIP investment with the goal of wealth build-up, it is vital that you protect it at any cost. So, you can consider switching to less-risky funds as soon as you reach your target. By shifting to debt funds, you can ensure that your accumulated corpus remains protected until the ULIP matures.

How to initiate fund-switching

You can switch funds by either visiting your insurer’s branch office or website. You have to fill-up a fund-switching form, clearly mentioning the changes you want to make. The insurance company will do the needful accordingly. You must also find out if your insurer offers a limited or unlimited number of switches per year to strategize accordingly.

By following these ideas under the fund-switching option, you can effectively manage the ULIP performance to stay aligned with your financial goals.