Ever wondered if you could grow two plants with one seed and avail the benefits of both insurance and investment with one plan? Yes, you can.
ULIP (Unit Link Insurance Plan), an insurance product, allows you to divide your investment into two parts. One portion of the investment goes into securing a life cover for you and your family while the other portion is contributed towards wealth generation through the medium of speculation in equity and debt instruments.
What makes ULIPs so lucrative?
What makes ULIPs stand out in the cluttered world of financial instruments is the transparency and flexibility they offer. The option of switching between funds gives you the liberty to monitor the performance of your investment, based on the net asset value declared periodically and re- allocate your units accordingly. If a particular fund in your portfolio is not working in your favour, you can transfer units partially or completely to a different fund, known to yield better returns.
Usually asset allocation is best left to the discretion of competent fund managers but in case you are well acquainted with the nuances of the financial markets you can take the plunge and switch your units between funds on a regular basis to maximize your returns.
Does switching cost a bomb?
While some insurance companies have unlimited switch options in ULIPs, other insurance do not charge for the initial 5 to 10 switches. Beyond that, a nominal amount of between Rs.50 to Rs.500 is levied per switch.
When is the right time to make a switch?
Determining stock market trends with certainty is a challenging task even for the market maverick, let alone a layman. What you can do at best is, if and when you perceive the market is about to go into a slump, you can make an exit and move your units to the safer shores of debt instruments. You can make the switch to equity again once the market has corrected considerably.
When your plan is nearing maturity and you have made ample gains from it, the time is ripe to make a switch from riskier equity to more secure debts.
Another factor that dictates a switch is the stage of life you are currently going through and the associated financial liabilities.
How to make a switch?
Insurance companies provide two options for conducting a switch. These options are as follows:
You will have to fill out the switch form and submit the signed copy of the form at the insurer’s nearest branch. You are required to furnish all the crucial details such as your name, name of the existing fund where your money is parked, name of the fund you wish the money to be transferred to and the amount you want to transfer. After acceptance, the desired amount will be transferred to the new fund as instructed by you.
You can also manage the switch through the self-service option available on the insurance company’s online portal. All you need to do is log on to the portal with your username and password. After you explicitly state the percentage of funds to be transferred, the company will execute the transaction upon your request.
If you feel that tracking the markets is not your cup of tea and your hectic lifestyle does not leave you with enough time to monitor your plan, you can choose the automatic switching option. In this case, the fund managers will act as your representative and make a switch on a regular basis between equity and debt instruments on your behalf.
Tips That Will Come Handy While Making a Switch between ULIP Funds
Getting the right blend of debt and equity
Attaining the right mix of debt and equity in your ULIP is a daunting task that largely depends on your risk appetite. While equity investments come with the maximum amount of risk they usually yield highest returns. Debt instruments on the other hand usually offer moderate returns but lower your risk levels.
Opt for Semi-Controlled Switches
The semi-controlled switch option allows for programmed switches every month in accordance with the instructions given out by you at the start of the plan. You just need to specify the amount and the particular fund from where the transfer is to be made. You must also mention the fund to which the amount must be credited.
Broader understanding of the economic scenario helps
If you possess an understanding of the operation of financial markets, the decision making process can become much smoother for you. In case of overvalued equity market, you can move your funds to debt instruments and return to equity post significant correction.
You should constantly review and monitor your plans in order to optimize your asset allocation and maximize returns. If used sagaciously, switching is one of the best features of ULIPs that allow you to move out of loss making funds whenever you deem fit. It will go a long way in shielding you from the risks associated with market fluctuations.
Have you ever wondered why you are asked to pay lesser premium than your friend or family member? To end the confusion, we have prepared a list of factors that affect how life insurance premium is calculated.
Awareness is the first step towards making effective decisions. Appreciating all the nuances of a powerful financial product like a ULIP will help you to decide the perfect plan for you.
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