A ULIP not only serves the dual purpose of investment and insurance but also comes with many other benefits. One of these is the option of free fund switches between various funds. This flexibility allows you to rebalance your portfolio and maximize your returns depending on your ability to take risks in tune with the market conditions. If you are in two minds between ULIP vs SIP, the switch facility might be a deciding factor for you to invest in the former.
How does a fund switch work?
When you invest your money in a ULIP plan, a portion of the premium is used to purchase life insurance, while the rest is invested in the market through a mix of funds as offered by your insurance provider. ULIPs typically have different asset classes such as debt funds, equity funds, and a combination of both to help you generate wealth over the long term. A fund switch allows you to move between funds with varying degrees of risk as per your needs such as:
- Wealth protection: One of the main differences between a ULIP vs SIP is that while you should continue your SIP even when the market is volatile, you can choose to reduce your equity exposure in ULIPs. Switching your funds from equity to debt funds prevents erosion of your accumulated corpus especially when you require money for your nearing life goals. You can move back to equity when the market is stable to enjoy higher returns.
- Poor fund performance: The switching option is also useful when funds in your ULIP plan are not giving you desired results according to your expectations. You can maximize your returns by making a switch from funds with a lagging performance to those that are performing better. This helps you avoid redeeming your units by simply modifying your investment unlike a ULIP vs SIP, when in the latter, in the absence of any such choice, you might be tempted to encash your invested amount.
- Life cycle stages: When you are young you can take risks with your investment irrespective of whether it is a ULIP vs SIP. However, as you get closer to your goals and have a family that is dependent on you, you might want to slowly increase your debt allocation while getting returns from equities. Fund switches allow you to adjust your investments in tune with your requirements in such conditions.
Your insurance company can offer you unlimited switches, or cap the limit beyond which a fee is charged. Regular monitoring of your funds, as well as market conditions, can help you utilize the switch option in a ULIP judiciously and build a sizable corpus. Apart from this, ULIPs available on Finserv MARKETS offer you partial withdrawal, additional riders for protection as well as the facility to change your premium frequency as per your needs.
So whether you are investing for your child’s education, your retirement or simply to generate higher returns in the future, you can choose from a ULIP plan that suits your requirements.