Learn ULIP fund switching tips

Imagine investing in a plan that not only serves as life insurance but also provides the flexibility to manage your investments. That's exactly what the ULIP does for you! A United Linked Insurance Plan enables investors to build wealth to meet their long-term financial objectives while having the security of life insurance coverage. 

However, many individuals wonder if it is possible to change their investment mix in ULIPs due to the complexity of the fund-switching process, ongoing market conditions, and regulations. If you also have the same query, this blog post will guide you through everything you need to know about changing your investment mix in ULIPs. 

Understanding the Investment Mix in ULIPs 

ULIPs offers a unique dual feature of investment to achieve your long-term goals, and life cover to financially support your family in your absence. ULIPs provide flexibility in asset allocation, and this key feature is what sets these plans apart from competitors. Investors can select from a diverse catalogue of fund options as per their risk appetite and financial goals. 

Basically, the investment mix in ULIPs includes: 

• Equity Funds: An equity fund is pools your invested money into a varied portfolio of market-linked stocks.  

• Debt Funds or Income Funds: A debt fund or income fund is a fixed-income instrument, like corporate and government bonds, corporate debt securities, money market instruments, etc., that provides capital appreciation. Debt funds are considered low risk when compared to equity funds, as they come with assurances of repayment.  

• Balanced or Hybrid Funds: A balanced or hybrid fund is a fund that simply includes both stocks and bonds. These funds often stick to fixed asset allocations of stocks and bonds, like 70% equities and 30% bonds. 

• Money Market or Liquid Funds: A money market or liquid fund is a low-risk, short-term debt instrument. They are considered short-term, liquid investments, offering little capital appreciation but leading to modest income through interest. 

Can You Change Your Investment Mix in ULIPs?

ULIPs provide flexibility in managing your investments by offering a mix of equity, debt, and balanced funds. Hence, this gives you the ability to adjust your portfolio over time to align with your current financial goals and risk capacity.  

You can manage your ULIP funds by using the ‘fund switching’ option. Nowadays, most ULIPs come with unlimited fund switches, allowing you to move around your funds as you like. However, some plans may charge a switching fee or only offer a limited number of switches, so be aware of your policy’s terms and conditions to avoid unnecessary costs. Fund switching can be done in two ways: 

    1. Automatic Switching (Auto Rebalancing): 

Automatic switching is usually offered in the form of Systematic Transfer Plans (STP). For example, Edelweiss Life- Wealth Plus offers two STPs, the Profit Target Based STP, and the Life-Stage and Duration Based STP. STPs switch your funds automatically to maximize your returns while minimizing your risks. Automatic switching is ideal for investors who are uncomfortable or unable to manage their own funds.  

Basically, automatic switching provides a hands-off approach to investing, allowing you to reap the benefits without having to put too much time and attention into the process. Your funds will be managed by investment professionals who adjust your portfolio based on the parameters you have set. 

    2. Manual Switching: 

In manual switching, you have full control of your ULIP fund portfolio. You can adjust your premium allocation according to your financial goals and risk capacity. You know what is best for you, and this option allows you to manage your funds as per your personal goals and aspirations. 

Look for ULIPs with ‘unlimited fund switching’ benefit if you wish to manage your funds without restraints. ULIPs that lack the ‘unlimited fund switching’ benefit usually have a set number of free switches that you can use in a year. However, any additional switches beyond the free limit may incur charges, depending on the policy’s terms. 

When Should You Consider Changing Your Investment Mix? 

Technically, there isn’t any specific ‘right time’ to change your investment mix. You should change your investment mix depending on your current financial needs, risk preference, and market conditions. Here are some scenarios where making changes would be beneficial: 

• Poor Performance: If one or more of your investments are performing poorly for a prolonged period of time, it might be better to change the investment mix and reallocate your money. 

• Market Conditions: If you observe a downturn in the market, it’s always wise to shift your investment mix to a safer debt fund to protect your capital from potential losses. 

• Change in Risk Preference: Initially, you might prefer a high-risk portfolio and choose equities that offer higher returns. However, most people become more risk averse as they age due to added family responsibilities. If you want avoid high-risk investments, you can switch your funds to low-risk options like government or corporate bonds (debt funds). 

• Change in Life Goals and Responsibilities: You might be single and without responsibilities at a young age, which gives you the freedom to choose an equity-only portfolio to grow your wealth. But your responsibilities will increase once you start a family, making it essential to save money. Therefore, adjusting your investment mix might be beneficial. 

Steps to Change Your Investment Mix in ULIPs 

Here are the steps to change your investment mix in ULIPs: 

Step 1: Examine your existing investment mix and determine whether it aligns with your current financial goals. 

Step 2: Review your ULIP’s policy document to find out if you have unlimited switches or not. If you don’t have unlimited fund switches, look for the number of free switches you can use in a given financial year as well as the charges associated with crossing that limit. 

Step 3: Properly analyse the market conditions and decide if it is suitable for changing your investment mix. 

Step 4: Now, initiate the switch through online mode or offline mode. 

1. Online mode: Log in to the insurer’s website, go to the fund switch section, select new allocation, and click on confirm. 

2. Offline Mode: You will have to visit the insurer’s branch or contact an agent to request to change your investment mix by filling out a form. 

Step 5: After changing your investment mix, keep monitoring your funds to determine whether they are performance has improved or not. 

Takeaway 

ULIPs offer the protection of life cover while creating wealth for long-term goals such as building your dream house, fulfilling your child's aspirations, meeting retirement expectations, and more.  

But ULIPs do not offer guaranteed returns, so it is essential to monitor your fund once in a while and make changes if their performance is not up to par. Adapting to changing market conditions is the key to long-term financial growth.