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Know the right time to switch your ULIP fund

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Know When is the Right Time to Switch Your ULIP Fund
January 19, 2024

Table of Content

 

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Combining the twin benefits of insurance and investment, Unit Linked Insurance Plans (ULIP) have turned into quite a favourite among Indian investors. A part of the premium paid for these policies goes to form the life cover, while the remaining portion is invested into market-linked funds to get returns. Here, the investment portfolio has either equities, bonds or a mix of both depending on the risk tolerance of the policyholder. But what if it doesn’t generate the desired outcome? This is where the fund switch option comes into play, which lets you reshuffle your portfolio. However, it’s essential to make an informed choice and opt for the switch at the right time.

Before digging deeper into the timing of the fund switch, it’s important to understand what it entails.

What is the fund switch option in ULIP?

The fund switch option in a ULIP plan is a unique feature that allows the policyholder to reallocate their investment among different categories of funds if he/she needs or wishes to. For instance, they can start with a pure equity portfolio, convert it into a combination of bonds and equities over time and choose a bonds-only portfolio towards the maturity of the policy with changes in life goals, liabilities and evolving risk appetite.

The right time for a fund switch

Technically, there can’t be a defined right time for a fund switch. The timing should depend on your financial needs and risk preference as well as the market situation. Following are the situations, where opting for a switch can be helpful.

Bad performance: If one or more of your funds is performing badly, it’s necessary to switch and reallocate the money.

Market situation: If you foresee a downturn in the market, it’s always wise to shift the money to relatively safer funds like bonds to protect your capital from a potential loss.

Risk preference: Starting young, you might prefer a high-risk portfolio and choose equities looking for a higher gain. If you turn risk-averse with age, a fund switch can help you shift your money to low-risk funds like bonds.

Life goals and liabilities: You might be single and without liabilities at a young age and choose an equity-only portfolio to grow your money. But as you start a family, liabilities will increase, so will be the necessity to save your money.

Impact of fund switch on ULIP

To make the most of your ULIP plan, fund switches are important in order to protect your capital from market volatility. But it’s necessary to know what benefits it would bring to your investment as well as the points of caution. 

ULIP plans are categorically of two types: A) where the higher of the sum assured and the fund value is paid on maturity and B) where the insurance and investment components have separate pay-outs. A fund switch affects these two categories differently. 

Here’s how:  

  • A switch at the right time can save you from potential losses

  • You can save the capital for a desired financial goal by making a fund switch in advance.

  • For the category A ULIP plans, a rightly made fund switch can generate higher gains.

  • The mortality charge in category A plans is the difference between the sum assured and the fund value. So, a cautiously made switch can save you from losing out on the life cover amount.

  • Because of the separate payout, a fund switch in category B doesn’t affect the insurance part. 

The last thing that you need to remember is, not all fund switches are free. Though few companies allow unlimited switches, most of them charge a fee after the first 5 or 10 switches.

Related Articles: 

ARN - ED/11/23/5973

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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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The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.   

For more details on risk factors, associated terms and conditions and exclusions please read sales brochure carefully before concluding a sale. Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns. 

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