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All you need to know about Fund Switching in ULIPs

ULIP plans allow switching the investment fund during the policy tenure. Though it is chargeable, it provides flexibility to the change the policy strategy as per the market trends.

  • 5,571 Views | Updated on: Dec 28, 2023

To secure your future financially, you must begin to save, invest and manage your finances. Investment is vital to put your money to work and create wealth. There are numerous tools available in the financial market to help you meet your financial goal. Everyone wants to increase the value of their savings. However, people often refrain from investing due to the risk involved. What if you are able to invest while minimizing the risk and also getting insurance cover? One such excellent choice is Unit-Linked Insurance Plan. It offers dual advantages of investment and insurance simultaneously. Keep reading to know more about it!

What is ULIP?

Unit-Linked Insurance Plan is an insurance policy that uses a component of your premium to provide insurance and the remaining to invest in different sectors. Based on the kind of investment, ULIPs can be debt-based, equity-based, or a combination of equity and debt called the Balanced fund.

Following are some prominent benefits of ULIPs:

1. The maturity amount received in ULIPs after the lock-in period of five years is tax-free.

2. ULIPs provide flexibility to pay premiums in accordance with your own convenience. Additionally, you can choose low-risk or high-risk investment options according to your risk-taking appetite.

3. You can select short-term or long-term ULIPs according to the duration of your financial goals.

4. ULIPs offer transparency to the policyholders with regular NAV updates that help them to track the performance of their funds.

5. You can make a partial withdrawal from your ULIP policy in case of an unexpected event.

Among numerous advantages of the ULIP, one of the most useful features is the ability to switch funds. The liberty to switch funds allows you to tailor your investments according to your preferences. You can customize your investment in the best way it suits you.

How to make fund switches?

To maximize your returns and minimize the loss, you must know when to transfer your units. It is not possible to predict the market fluctuations accurately, but one can make the switch by tracking their NAV updates. Net Asset Value (NAV) is declared by the insurer on a regular basis and makes the policyholder aware of their fund’s performance.

One can switch the funds on the official website of the Insurance company. Alternatively, you can fill out the required form and submit it at the nearest branch to transfer your funds.

Benefits of the ULIP Fund Switching Feature of ULIP:

Protect your Investment from the Market Volatility

Most investors refrain from investing due to the market fluctuations affecting the performance of their funds. However, the fund switching feature of ULIP allows you to modify your investment and minimize the loss.

Accomplish your Financial Goals

Financial goals are the objectives you set to accomplish over a certain period. Short-term goals can be achieved in a short period, while long-term goals can take several years to be fulfilled.

ULIPs invest your funds in equity, debt, or balanced funds depending upon your budget, risk-taking appetite, and duration of your financial goals. With the fund switching benefit of ULIPs, you can transfer your units fully or partially between these different options while aligning your portfolio with your life goals.

Invest According to your Risk-Taking Appetite

You can switch funds anytime and modify your investment according to your income, budget, and risk-taking appetite. For instance, one can afford to take a higher risk at a younger age but might want to switch to a low-risk option later. ULIPs allow you to switch to debt-based types that involve low risk and vice versa.

Tax-Free Transfer

ULIPs not only offer tax-free returns on the maturity benefit but also allow you to switch your funds with almost no tax applicable. Moreover, it does not attract any capital gains tax , hence letting the policyholders make multiple tax-free switches.

Hence, you can easily switch your funds and allocate your assets according to your preferences in the Unit-Linked Insurance Plan. As a result, you can minimize the risk and maximize the returns according to the performance of your funds in the capital market.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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