ULIP Fund Switching – How Do You Do It?

A ULIP is an insurance and investment product that helps you create wealth for the future and provides the benefit of a life cover too. One of the significant advantages of choosing a ULIP is its flexibility, which makes it very investor friendly. 

When you choose the right plan after understanding what is a ULIP, the premiums you pay are invested in market-linked financial instruments of your choice after all applicable charges have been deducted. Many investors select ULIPs for their fund-switching options. Let us learn about this in detail. 

What is the fund-switching feature in ULIPs? 

When you invest in a ULIP, the funds are invested in either equity, debt, hybrid, or liquid fund options. Every ULIP plan invests in multiple funds to balance the risk. Also, the risk depends on the gains you expect and your short- and long-term financial goals. For example, if you wish to earn more and are ready to take a risk, you can choose an equity fund, and if you want to play it safe, you can pick the debt fund option. 

Investors can also invest the majority of their funds in equity and lesser in bonds. For example, high-risk takers often invest 60-70% in equity and the remaining in bonds. But, the same might not apply to those saving for retirement. So, it helps to switch to safer options like bonds in those scenarios. This is when switching funds becomes a viable strategy. 

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Investors can use the switch fund option to move some of their investments from equity to bonds or move the entire fund allocation to bonds. The percentage of funds invested in equity or bonds depends entirely on the investors. 

The insurance company provides the option of a fund switch. Most companies allow investors to make a particular number of free switches every year, and any switches after this limit incur a small charge. It can be done manually, or you can also choose the auto-switch option, where the fund manager at the insurance company allocates the funds.

When should one use the option of fund switching?

Now that we have learned what fund switching is and how it is used, the next question that arises is about when to use the fund switch option. First, let us look at it in detail.

Every ULIP policyholder should track how their fund performs via the fund’s NAV (net asset value) value given by the insurer. When investing in the ULIP, the insurer provides you with all the details about the fees, charges, or other charges that might be involved in the fund-switching option. 

As the markets cannot be predicted thoroughly by anyone, it gets hard to predict the right time actually to make a fund switch. But, the option of a fund switch is solely provided to help investors earn maximum returns on their investments. If you find that the markets aren’t performing well, and you have a large share of your investment in equity, you can use the fund-switching option to move a part of the funds from equity to debt. Then, once the market picks up, you can allocate those back to equity.

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When you have almost reached the end of the ULIP plan or have a financial commitment, it is advised to move more than 50% of your investment to bonds. This needs to be done at least two years before the plan’s maturity. 

If you are new to investing in ULIP, you can always rely on your fund manager to help you invest smartly. 

What are the charges for ULIP fund switching?

As mentioned earlier, the charges or fees for fund switching are provided when you first invest in ULIPs. Most insurance companies provide at least five free fund switches to their policyholders. A few even provide up to ten free fund switches and charge approximately Rs. 50 to Rs. 500 above those. Again, the charges will vary from one insurance provider to another.

Hence, investors need to check the number of free fund switches provided before investing in a ULIP from a specific insurer. 

What is the procedure for doing a fund switch?

When you wish to make a fund switch, you must fill out a form provided by the insurer. The duly filled form should then be submitted to the nearby branch office. You also need to mention the details about the funds you wish to transfer to the new fund picked by you.

A few insurance companies also provide an option of self-service, where the policyholder can switch funds through digital channels. Fund switching is one of the most investor-friendly features of ULIPs. Make sure you use it wisely to maximize your returns and mitigate market risks. 

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