How Fund Switching Works in ULIPs?

Unit Linked Insurance Plans (ULIPs) are a unique product that offers dual benefits of life insurance and investment. The life insurance quotient works like any other life insurance quotient in other plans. However, the premiums that you pay for a ULIP are used differently, when compared to a traditional life policy. When you purchase a ULIP, the premiums that you pay are partly utilised towards providing you with a life cover and partly invested in funds of your choice.

Being an investor, you can decide which funds you want to put your money in based on your risk appetite. If you have a high-risk tolerance, you can allocate your money to equity funds. Whereas, if you are risk-averse, debt funds might be a safe bet. For those who are looking for moderate risks and moderate returns, there are balanced funds. Use a ULIP plan calculator to ensure that your fund allocation aligns with your goals. If over the years, you are unhappy with the performance of your assets, you can always opt for ULIP fund switching. 

What is fund switching?

ULIP has a unique feature of switching your fund allocation anytime you want throughout the duration of the policy. The aim of this feature is to leverage funds that are performing well. If the funds of your ULIP portfolio are not generating profits or offering lower returns than peers, you can choose to switch funds. You, as an investor, can decide the number of units you want to switch. You can transfer from debt funds to equity funds or vice versa. However, it is essential that you track the past performances of the new funds before leveraging a ULIP’s fund switching feature. Also, once you have switched your allocation, track the performance by checking the Net Asset Value (NAV) of your fund periodically.

When should you switch funds?

It is impossible for investors to time the market. However, if you expect a drop in the market, you can optimise your ULIP allocation by switching to safer funds. Investors who have their allocation in equity usually switch funds to debt if they foresee a market crash. This is because debts are a low-risk investment option. Later, once they see the market progressing, they can again switch their allocation back to equity. Usually, insurance companies allow two to three free switching of funds during the entire policy duration. When you buy a ULIP, it is important to know the fund switches allowed by your insurance company and any charges associated with them. 

It is also important that you keep the goal in mind for which you are investing in a ULIP, be it your child’s education, your retirement corpus, or any other financial aim. Use a ULIP plan calculator while buying your plan and allocate your funds accordingly. Over the years, with compounding, your ULIP would have a sizeable capital. When you are nearing the maturity of your plan, it is also wise to park your major funds in debt funds to keep them safe. 

How to switch funds?

Usually, there are two ways a policyholder can go about executing their request to switch funds:

Option 1: Form submission

Submit a duly filled form and an endorsement form to the nearest branch of your insurance company. It is important to fill in the precise details of the number of funds you want to transfer, the name of the existing fund plan, and the name of the new fund plan that you have selected. After you have submitted your request, the current funds of your ULIP will be allocated to the new funds.

Option 2: The portal of your insurance company

Managing your fund switches is easy through the self-service facilities that insurance companies provide on their portal. Log on to the insurance portal website with your name and password. After entering the percentage of funds you want to switch from an old fund to a new fund, the process begins shortly. 

If you find it difficult to track the market, there are ULIP funds that offer the option of automatic switching. With this option, your fund manager manages the allocation of your ULIP. Based on the market, they switch your funds between debt to equity on your behalf.