ULIP Fund Switching Techniques: What is Fund Switching in ULIPs?

Unit Linked Insurance Plans offer dual benefits –you can enjoy the benefits of life insurance coverage as well as invest in funds of your choice. It is also an excellent opportunity to gain high returns if you invest in long term ULIP plans. 

An ideal strategy that most people follow is – invest in a single type of fund, wait for the policy to mature, and expect a good return. However, it may not always work in your favour. When you invest in unit linked insurance plans, you also have to monitor the performance of your funds regularly. In case, they are not gaining returns as expected; you can make the necessary changes.

This is where fund switching comes into the picture. With the help of fund switching tool, you can control and manage your investment plan as you want. The tool is potent and needs to be approached with caution. It is noteworthy that if the tool is used without appropriate techniques, it may impact your ULIP returns.

Understanding Funds in ULIPs

Like we mentioned earlier, with unit linked insurance plans, you can choose to invest in funds of your choice. Here, you can invest in either equity-oriented funds, debt funds, or a combination of the two. Investors with a high-risk appetite can invest in equity funds, whereas the ones with a low-risk appetite can invest in debt funds.

No matter which kind of funds you choose to invest in, you should have a complete understanding of the investment pattern of each fund. This information can be obtained from the brochures and insurance paperwork of your ULIP investment.

Types of Fund Switching In Unit Linked Insurance Plans

Generally, there are two types of fund switching in ULIP plans.

  1. Life Stage Based Fund Switching

  2. Fund Switching To Maximise Profit

Life Stage Based Fund Switching

The basic principle behind life stage based fund switching is that you (the investor) tend to have a high-risk appetite when you are young. Hence, you can take risks when it comes to investment. As you grow older, it is highly advisable to switch from equity-oriented funds to debt funds which are low risk in nature.

This kind of switching is market independent and can be done by investors who have little to no understanding of how the share market performs.

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 switching as market fluctuations are quite unpredictable.

However, there is a way in which you can safely switch funds to maximise your ULIP benefits. You need to have a complete understanding of the fund pattern of your investment plan and the share market.

What Is The Best Time For ULIP Fund Switching?

To understand the best time for ULIP fund switch, you require a deep understanding of how the share market performs. Here are some ground rules that you need to follow when switching funds. This will ensure that your money is safe and funds are effectively switched.

Nine 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 and steady.

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

  3. After a while, switch from debt funds to equity-oriented funds. This switch needs to be done only when the stock market has been steady for some time.

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

  5. Do not panic with unpredictable market fluctuations and wait for it to reverse.

  6. Once the market stabilises and has gone reasonably high, switch to debt funds again.

  7. Do not wait for the market to perform better to make the fund switch.

  8. Do not make switches during every high and low of the market performance.

  9. Everyone wants to earn high returns. However, it is advisable and wise to be safe and not lose money. Hence, you should keep your money in long-term funds for gaining high ULIP returns.

Over to You!

Having a basic understanding of what a unit linked insurance plan is and how it functions, is essential before investing in the policy. Also, a lot of investors starting using fund-switching tool without first understanding how it works. It ends up impacting their ULIP investments and the expected returns. It is also advisable to know how stock market variations impact fund performance. This will help you while making fund switching decisions.

If you are looking to invest in unit linked insurance plans, then get in touch with us at Finserv MARKETS. You can take advantage of dual-benefits, build your wealth over time, make the most of ULIP tax benefits, get protection for self and loved ones, and more.

So, don’t wait! Explore Bajaj Allianz Life’s exclusive ULIP plans available on our platform, today.

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