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Rediff.com  » Business » Want to know about 'switches' in Ulips? Read on...

Want to know about 'switches' in Ulips? Read on...

Last updated on: April 28, 2011 13:53 IST

Want to know about 'switches' in Ulips? Read on...

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Neha Pandey in Mumbai

Switches are options given to policyholders of unit-linked insurance plans (Ulips) to move their investments from one fund to another, within one plan.

You can transfer units fully or partially between fund options - equity, debt and equity to debt.

Typically, Ulips offer pure equity, debt and balanced fund options to their customers. Mostly, each Ulip can invest in a minimum of four-five funds. And, the policyholder is allowed to choose the funds where his/her money will be invested.

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Most Ulips do not charge for the initial five-six, or even eight, switches at times. For more than this, they may charge anywhere around Rs 50-300.

Some companies have eliminated this cap on free switches altogether in policies launched after September 1, 2010, enabling policyholders to make as many switches as they wish during a policy year.

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Want to know about 'switches' in Ulips? Read on...

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What is the benefit of switching?

Switching is the best feature in a Ulip because it allows you to move out of loss-making funds.

Policyholders should track the performance of their Ulips and switch when necessary, as the premiums are reasonably high and losing money after that will not serve the purpose.

You can track your schemes' performance in a Ulip, since the net asset value is declared periodically. Even at the time of investing, you get all details (fees and expenses deducted) or the break-up of the premium and the total amount invested.

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When to make the switch?

Although it is not possible for investors to time the markets - anticipating the ups or downs - you can cut your losses if you are not happy with a fund's performance or foresee a dip in the market.

In volatile markets, you can switch to safer funds and optimise opportunities. You can exit loss-making fund(s).

You could transfer a large portion of your investment to debt funds, and switch these back into equity once the market picks up again.

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However, since this won't be as easy, it is best to switch in a phased manner. So, three switches can be staggered over six months.

This will help leverage different stages in the market cycle. Some insurance companies allow switching in line with one's goals.

Importantly, nearer to your goal, you can switch to a debt fund to reduce risk and protect your capital.

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How to make a switch?

You will need to fill a fund switch form or write to the insurer giving clear written instructions to transfer funds.

You need to mention exact details of amount to be transferred, your plan and funds and new fund opted for.

Consult your financial advisor or the fund manager before you switch funds, as your risk appetite, age, goals and dependents are the other factors to consider before switching.

 



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