Investing in mutual funds does not give you any insurance benefit. A Unit Linked Insurance Plan (ULIP), on the other hand, is a combination product that lets you invest in equity and debt funds while at the same time providing a life insurance benefit.
With a ULIP, your family will be paid the death benefit if you pass away during the policy tenure. If you survive the term, then you will get the fund value or the assured sum, whichever is greater.
Now, when it comes to the investment part of a ULIP, the insurer gives you free rein as to what mutual funds you want to invest in. Based on your financial strategy, you can choose to invest in equity funds, debt funds, or a combination of both, called hybrid funds. But one of the advantages that ULIP plans provide is the ability to switch funds at any time during the policy tenure.
Click here to know more about the differences between ULIP and Mutual Funds.
Read on to understand why you may need to switch funds in your ULIP plan and how you can do so easily.
What is the need to switch funds?
As investors, most of us know that certain funds are riskier than others. For example, investing in equity funds brings with it the risk of market volatility. Debt funds, on the other hand, are low on returns but are much more stable, although they too are dependent on inflation and interest rates.
At the beginning of your investment journey, you may be willing to take greater risks by investing more in equity funds and less in debt funds. This is when you may not have many obligations, and taking that risk could be understandable. As you grow older and have more financial responsibilities, your risk tolerance may decrease, and your financial strategy will lean more towards stability with steady growth.
So, naturally, you may feel the need to reallocate your portfolio and give greater preference to the safer debt funds. For the usual mutual funds, simply switching funds is not possible. You would have to sell your units and purchase new units in a different fund of your choice. There will also be tax implications as you would be gaining a profit. However, for ULIPs, this is not necessary. You can easily switch funds midway, and there would be no tax implications as well.
How to Switch Funds in ULIP Plans?
Switching funds from equity to debt or vice versa is extremely simple. All you must do is open up your insurer’s mobile app or visit their website. Login using your details and locate your ULIP plan. You’ll have the option to ‘Switch’ your funds. Simply follow the instructions and reallocate your portfolio. You can even move out completely from your existing fund and switch to a new fund.
Key Points To Remember:
– Depending on your ULIP plan provider, switching may be possible only for a limited number of times in a calendar year. Some providers allow about 4 to 52 switches, while others allow an unlimited number of switches per year.
– The insurance component of your ULIP plan is unaffected by the switching. So your assured sum will remain the same.
– It is a voluntary and manual process, which means it will never be done automatically unless specified by you.
Visit here to know more about Unit Linked Insurance Plan: https://www.kotaklife.com/online-plans/ulip-plan