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Understand the switch funds option in ULIPS

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Understand the switch funds option in ULIPS
August 24, 2023
These days, varied investment options have flooded the markets owing to consumer-centric policies laid out by the insurers. One of the best and beneficial investment options is investing in a ULIP. A ULIP is a Unit Linked Insurance Plan that offers the joint benefits of insurance and investment and has emerged as a popular plan in the recent times. A ULIP is a highly flexible investment channel and comes with a minimum lock in period of five years. It is ideally suited for short term financial gains and even long term fiscal coverage. A ULIP offers a beneficial and flexible feature of fund switching between the available options. This option of switching funds is very beneficial and is also exempt from any taxation etc.

Here is a list of key pointers regarding the switch-fund option in ULIP plans that will help us gain an insight into this feature:

  1. Switching funds in an existing ULIP is very beneficial as it gives you the desired safety against fluctuations in fund performances as per the market conditions. Once you invest in a fund, the performance and the resulting dividends from it may not remain stable and may vary as per the market. Therefore, once you can check that the projected performance of a particular fund is not satisfactory, you can switch to other available option and hence, keep your overall gains stable.
  2. When you switch funds, the overall impact that it has on your insurance cover differs from one plan type to another. For instance, if your plan entitles you to receive separate monies against the insurance part and the investment core, then switching between funds has no actual impact on the overall insurance segment as the insurance policy payout is not impacted by any changes in investment options. However, this does not hold true when the entitlement is for the insurance corpus (sum assured) or the value of an investment fund. In such cases, any fund switch (especially if done near the end of policy term) must be done after careful consideration of the options.
  3. Once you purchase a ULIP, there is a capping (generally up to 10) on the number of free fund switches in the initial years. This entitles the policy subscriber to switch between funds up to the stated number of times. However, once this capping is crossed, a fee (fund-switching fee) is levied.
  4. As mentioned, whenever the policy subscriber foresees or projects that a particular fund will not perform satisfactorily over a period of time, then the switch should be made. However, this must be done after professional and expert consultation and not randomly. The process for switching is also easy. There is the offline option - where the subscriber just has to fill in the application for the fund transfer and then visit the insurance provider's nearest branch. The details like the value to be switched, the preference of the new fund option etc. must be mentioned. Alternately, there is the online option, where the subscriber has to register on the insurance provider's official web portal, log in and then apply for the fund switch from the list of given options.

HDFC Life offers HDFC Life Click 2 Invest ULIP - a market linked insurance plan that comes with minimal charges and is best suited for your investment needs.

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ARN: ED/12/19/17049

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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