Timing Is Always the Key Taking a Look at Switching ULIP Funds

While investing in a ULIP policy is a great decision, there are a few nuances to consider. What is ULIP policy? It combines both insurance and investments, with the premium going into various market-linked instruments for future wealth creation, after the deduction of applicable charges. There is another advantage of choosing these policies, namely the ability to switch funds depending on market movements and your financial goals. Sounds confusing? Here is a guide to the same. 

Fund Switching- What does it entail? 

Fund switches are choices for policyholders where they can shift their investments across funds within a single plan. You may transfer your units either completely or partly between several fund choices like debt, equity, liquid and balanced funds. A ULIP policy usually offers these kinds of fund choices to policyholders and invests in four or five funds at the most. The policyholder can choose the funds from the outset too. 

A majority of ULIPs will not charge for the first few switches. However, exceeding this threshold means paying anywhere around Rs. 50 to Rs. 300. The fund-switching feature comes with multiple accompanying benefits. It enables customers to shift to better-performing funds from loss-making or underperforming ones. It also enables policyholders to choose funds that are more in tune with their evolving life goals. Tracking ULIP policy performance is essential in order to switch funds whenever necessary. 

The Modus Operandi Of Fund Switching And The Best Time 

You can deploy investments in several kinds of debt and equity funds. As an investor, you can shift between several funds that are available at the insurer, based on your needs. If you are not happy with your ULIP returns, then the fund switching facility comes in handy. You may shift to a debt fund from equity or vice versa. You may also choose a combination of both for better returns. 

Now, what is the best time to switch your funds? Here are a few aspects worth noting in this regard: 

  • You can switch funds based on market conditions. For instance, assume that you have 70% of your portfolio in equity and 30% in debt. In this scenario, if the market is volatile and your funds are subject to fluctuations, then you can allocate more to debt in order to safeguard your investment. In a reverse scenario, if the market is picking up, you can shift more to equity in order to maximize your returns. 
  • You can also switch funds based on your life stage and risk-taking abilities. If you are young and can take risks, then you may allocate more to equity. With growing responsibilities and commitments, you may switch to debt funds for greater safety. 
  • You can change your fund allocation strategy, depending on evolving risk appetite, increasing income, and other factors. This will help you ensure that the portfolio does not get exposure to higher risks in comparison to what you can tackle. 

There is no defined best time for fund switches. It all depends on your life stage, age, responsibilities, risk appetite, and the market movements. You should continually track fund performance and implement switching strategies whenever necessary in order to keep your portfolio performance at optimal levels. You may take financial advice if required. 

Fund Switching Costs for ULIPs

There are many free fund switches that you can avail with your ULIP policy in most cases. However, some plans may have limits on this count. After surpassing this figure, you will have to pay additional charges. It is a nominal fee that is payable to the insurance company. It may be approximately Rs. 50 to Rs. 300 for every switch, depending on the company. Some companies also have unlimited fund switching choices for customers. 

Make sure you track your NAV (net asset value) regularly, while tracking market conditions simultaneously. It is the best way to gauge fund performance and ask for switches whenever the timing is right. Get your financial advisor to discuss possible strategies with you and guide you on the best time for a switch. Be aware of the free switches and subsequent charges, if applicable. Fund switching is one of the best features of ULIPs. Make sure you use it wisely to optimize your returns.