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What is Fund Switch in ULIP?

Unit-Linked Insurance Plans offer a dual advantage where you can enjoy a life cover as well as invest in the fund type of your choice. An ideal strategy that many people follow is to opt for a particular type of fund option and stay invested until policy maturity while expecting good returns.

To help you meet your life goals and mitigate any investment risks, ULIPs enable you to switch funds. With the help of a ULIP fund switch, you can manage your investment returns for lucrative gains. Thus, you can move your investments from one fund to another in case of increased market volatility or to suit your long term financial objectives.

How Does Fund Switch in ULIP Work?

There are different types of fund options available in ULIPs such as equity, debt, and balanced funds that you can invest in. Depending on factors such as your risk appetite, life goals, age, and many others, you can choose a suitable fund option.

Going forward, in case you aren’t satisfied with the returns earned from your ULIP investment or due to increased market volatility, you can switch from one fund type to another. The units can be transferred partially or completely between the investment fund. Initially, you get a limited number of free fund switches in ULIP. On exhausting these, you will have to pay a fund switch charge to transfer your units to another fund option.

Benefits of ULIP Fund Switch

Fund switching in ULIPs is one of the most beneficial features offered as it allows you the freedom to move out of loss-making funds. In case any fund in your portfolio isn’t yielding much profit, you can make use of the online ULIP fund switch option. Here are a few more advantages of fund switching in ULIPs:

Risk Appetite Based Investment

When it comes to market-linked investments, most investors have a certain risk appetite. While you might prefer stable returns with lower risk today, this could change in the future when you get well-versed with the market movement. This is where fund switching in ULIP comes in handy as it enables individuals to invest based on their risk appetite. In case your risk appetite was to change, you could easily opt for the ULIP fund switch option without any hassles.

Investing in Accordance to Life Goals

Our financial responsibilities and life goals keep evolving based on our age and future requirements. So, in your early 20s, when you do not have many responsibilities, you might be comfortable with high-risk investments. But when you start a family, you would prefer moving to hybrid funds for stable returns. The ULIP fund switching techniques enable you to manage the investment based on your long term life goals.

No Tax Applicable

<p>There is no tax applicable on fund switching in ULIP apart from the charges levied by your insurer for offering this facility. So, you can take advantage of the fund switching benefit in insurance! However, you must keep in mind that tax will be applicable on the maturity benefit if the annual premiums are more than ₹2.5 Lakhs.</p> <p>Furthermore, it is recommended to track the performance of your ULIP investment to help with switching at the right time. As the Net Asset Value or NAV is declared from time to time, you can keep a tab on your investment returns and use the free switches. Due to the complete transparency offered in ULIPs, you can understand how much of the premium is being invested towards the fund after the necessary deductions.</p>

Types of ULIP Fund Switching Techniques

Generally, there are two types of fund switching techniques in ULIP plans, namely life stage based fund switching and fund switching to maximise profit.


1. Life Stage Based Fund Switching

Life stage based fund switching works on the principle that the risk appetite of an investor is based on which life stage they are in. Thus, many individuals tend to have a higher risk appetite when they are young as they can afford to take risks.

However, as you grow older, it is highly advisable to switch from equity-oriented funds to debt funds which are low risk in nature. You can use such ULIP fund switching techniques to suit your life stage and earn lucrative returns.


2. Fund Switching to Maximise Profit

Here, the switching from equity-oriented funds to debt funds and vice versa depends on the market performance. However, one needs to be very careful when using this type of fund switch in insurance as market fluctuations are quite unpredictable. To maximise your ULIP benefits, you must have a good understanding of the fund pattern of your investment plan and the share market.


When is the Best Time to Switch?

Timing the market or anticipating its ups and downs is not always a feasible option for many investors. Instead, you can cut your losses if you are not happy with a fund’s performance or switch to safer funds if you foresee a drop in the market. For instance, if you want to lower your risks during high market volatility, you could transfer a major chunk of your ULIP investment to debt funds. Later, you can switch back to equity once the market picks up again.

Additionally, you can also make switches according to your life stage or personal financial goals. Younger investors may be more willing to take on risks than older investors. Once you start nearing your investment goals, you can switch to low-risk debt funds and secure your capital.

Some Ground Rules To Switch Funds Effectively and Maximise ULIP Returns

  1. Initiate your ULIP plan by investing in debt funds as the risk involved is low and the returns are steady

  2. Have patience and keep your debt funds intact for as long as possible

  3. Make sure that you do not wait to make the switch until the stock market reaches the lowest point

  4. Switch from debt funds to equity-oriented funds after the stock market has been steady for some period

  5. Remain patient in case of unpredictable market fluctuations and wait for it to stabilise

  6. Avoid making fund switches during every high and low of the market

  7. Stay invested for the long term to gain high ULIP returns

Over to you!

It is crucial to have a basic understanding of the features of Unit-Linked Insurance Plans before investing in the policy. Many investors start using the online ULIP fund switch option without learning how it works. This can negatively impact your ULIP investment and the expected returns. Thus, it is recommended to know how the stock market variations impact the fund performance to help you make fund switching decisions.


Before investing in ULIPs, you can make use of our ULIP risk calculator to understand your risk appetite and find a suitable plan accordingly!

FAQs on ULIP Fund Switches

Does ULIP fund switch attract any taxes?

No, fund switching in ULIPs does not attract any taxes and thus, you can allocate your ULIP premium to earn high returns.

Is fund switching in ULIPs similar to premium redirection?

No. Premium redirection is where you redirect your future premiums for investing in a particular fund type. Whereas in ULIP fund switch, you partially or completely move units from one fund type to another.

What are the charges applicable for fund switching in ULIPs?

Most insurance providers offer a certain number of free switches and levy a flat fee after that. So, it is recommended to check with your insurer and plan the ULIP fund switches accordingly.

Is the maturity amount received from my ULIP investment taxable?

If your annual ULIP premiums are more than ₹2.5 lakh, the maturity amount will be treated as capital gains. Thus, it is advised to plan your insurance premium to avail tax benefits on the maturity amount under Section 10(10D) of the Income Tax Act, 1961.

Are the premiums paid towards my Unit-Linked Insurance Plan eligible for tax benefits?

Yes. You can claim the premiums paid towards ULIPs under Section 80C of the Income Tax Act, 1961. A maximum amount of ₹1.5 lakh can be claimed per financial year.

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