How does fund switching work in ULIPs?

A Unit Linked Insurance Plan (ULIP) has been in the market for quite a long time. However, a ULIP plan might not have gained popularity after its introduction due to its lack of flexibility. After undergoing multiple changes, a ULIP policy has re-emerged in the Indian market as a flexible form of investment.

Today, a ULIP plan can allow you to select the types of funds based on your risk appetite, investment goals, and preferences. Although a ULIP plan is a market-linked product, it can ensure that you receive your returns based on the selection of your ULIP funds. Typically, a ULIP policy can offer you with two main types of fund options. Therefore, let’s take a look below to find out the available funds under a ULIP policy:

  1. Equity Funds

Equity funds are high-risk fund options. The returns generated from equity funds can depend on market performance. Therefore, see to it that you identify your risk appetite before you choose to invest in equity funds. If you can bear the risks of the market, you should opt for an equity market. Typically, you should invest in equity fund at a young age when you have an aggressive risk appetite and lesser financial responsibilities.

  1. Debt Funds

Unlike equity funds, debt funds under a ULIP plan can be safer options for investment. However, debt funds can provide you with relatively low returns. Ideally, you should opt for debt funds when your financial duties towards your family increase. For instance, when you get married or have children, you might not be able to afford the risks of the market, hence opt for debt investment.

A ULIP investment can give you the liberty to choose between funds. In addition to this, it lets you secure your invested capital from market fluctuations through switching feature. Under a ULIP policy, the switching feature can allow you to manage your funds as well as allow you to invest based on your investment goals.

Before you choose between ULIP funds, let’s understand what a switching feature is in detail:

The switching feature can be availed whenever you feel that you are unable to tackle market volatility. For instance, you can opt for debt funds when the market is down and go back to equity funds when the market bounces back. However, there can be switching charges if you want to shift to a different fund. The charges availed for switching can vary from one insurer to another.

Let’s simplify the switching feature with the help of an illustration mentioned below:

For instance, you have 70% of your investment in debt funds, while the remaining 30% can be in equity funds. If the market is in a good investment condition, you can take your 30% equity investment a notch higher and turn it into 70%. However, when the market status is negative, you should secure yourself and stick to 70% of debt investments.

As a policyholder, you can avail the switching feature under a ULIP policy by following the given steps mentioned below:

  • Take a registration form from your insurer to do it online.
  • Visit your insurer’s online website.
  • Register to avail the switching feature.
  • Submit the relevant details.
  • Provide a photo proof such as valid passport, driving license, aadhar card, or pan card.

In a nutshell, switching feature can be an essential part of your ULIP investment. However, you should constantly keep a check on the market performance and monitor the performance of your selected funds to ensure a successful transfer. When you use the switching feature appropriately, you might be satisfied with the returns in your hands.

Justin Author