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How Fund Switching Works in ULIPs

If you are an Indian investor, you might have heard about Unit Linked Insurance Plans (ULIPs), or maybe you have already invested in one. ULIPs are policies that offer a life insurance cover along with investment options. The ULIP fund manager allocates your premiums into the life insurance policy and different investment funds such as debt, equity, or a combination of both.

ULIP investment plan offers many benefits to help your money grow significantly. One of the unique facilities of ULIP is the fund switching option. Read on to know more about it.

How does fund switching work?

While investing money in a ULIP, you have the flexibility to decide how the fund manager allocates your money into different funds. You can choose these funds based on your risk tenacity. The possibility of fund switching allows you more control over the ULIP, as you can use the option to reallocate the funds according to your preference.

The insurance provider offers you the fund switching alternative to ensure that you can get the best returns out of your investment. As per your changing risk-taking ability and the financial market’s situation, you can switch between debt and equity funds. For example, if you are not satisfied with a debt fund’s returns, you can move your investments to an equity instrument. The risk will be higher, but you can build more considerable wealth.

Similarly, suppose your money is in an equity fund, but you are not comfortable taking the risk any longer, you can shift your investment to a debt-based fund. Such an avenue will generate a steady income with lower risk. You can also balance risk and return by dividing the investment between both funds. Switching between the ULIP funds grants you more flexibility with handling your investments.

How to use the fund switching option

It is relatively simple to avail of the facility. All you have to do is visit the insurance company’s website and enable the fund switching option. Once it is accepted, you can then proceed with switching between the funds. You can also complete the process by visiting the insurer’s branch nearest to you and submit a physical form. Once the insurance company processes it, you will be able to use the option.

You must remember that insurers allow free switching only a limited number of times, and you have to pay a fee per switch once you exceed the limit. However, the charge is minimum.

Benefits of fund switching

You can manage your investments in a wiser manner by switching between ULIP funds. The financial market has ups and downs throughout the year. While it can be a cause of concern in the case of most other investment options, with ULIP you have the opportunity to change your strategies accordingly. If the market is acting volatile at any moment, you can switch to a safer option like a debt fund. Hence, irrespective of how the market is behaving, you can always ensure stable returns by utilizing the fund switching option.

On the other hand, when the market condition improves, you can allocate more money into equity funds. This way, you can maximize the returns when things are going your way. However, to do this successfully, you must always keep an eye on the performance of your funds and the finance market at large.

This is why you must find out about the fund switching option before investing in a ULIP. You can then use a ULIP calculator to get an idea about the estimated returns you may earn in the long run.

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