Fund Switching in ULIP

Why Switch Your ULIP Fund Portfolio?

Fund switching in ULIPs offers flexibility to the life assured, allowing them to manage their ULIP portfolio according to their risk appetite , life stage, market conditions etc. Some common reasons to switch funds include:

• Market Volatility: Moving from a higher-risk fund to a lower-risk fund when the market outlook is uncertain.
• Adjusting strategy: As the life assured grows older, the preference might shift towards low risk funds.
• Taking advantage of market conditions: Switching to equity funds when markets are favorable to enhance returns potentially.

 

Benefits that ULIP fund switches offer

When done in the right manner, switches could be beneficial for you. Let us take a look at the benefits that ULIP fund switches offer:

 

1. Allows you to deal with market fluctuations

   While no one can really predict the changing market trends, one can monitor the trends closely. For example, if you feel that there is a possible correction in the market, you may shift your funds wholly or partially into debt funds, in order to safeguard the investment.

   
   

2. The fund switch is tax-free

   A ULIP fund switch does not attract taxes, as there is no capital gain taxation for fund switches in ULIPs.

   
   

3. You could get multiple fund-switching options

   Some ULIPs today offer the advantage of unlimited fund switches. Other plans have a definite number of switches that are allowed free of cost, while there could be a nominal fee for the remaining.

   
   

4. Investments can be in line with your life goals

   As you move ahead in life, your current financial situation, as well as future financial aspirations, may undergo some changes. ULIP fund switches allow you to manage the investment effectively as per your changing needs and changes in asset allocation and financial goals.

 

How does ULIP fund switching work?

Fund switching in ULIP is a great option for an investor, as it allows you to protect your investments from the ups and downs of the market.

Fund switching may be considered as one of the major advantages of ULIPs. As there are different types of investment funds in a ULIP, you can choose the ones that are suited as per risk appetite and your financial goals. Through fund switching, you have control over your investment and can keep changing your allocation in the different asset classes. Also, you may choose to switch between the funds wholly or partially depending on your preference or as per the market fluctuations.

 

What is the Right Time for a Fund Switch?

There is no fixed “best” time to switch your funds. But there are a few situations where fund switching can be a viable option.

• Before a major life event: If you're planning a big expense like your child’s education or buying a house, it’s good to move to safer fund options like debt funds to protect your savings.
• When nearing maturity: As your policy nears its maturity date, you may want to shift to low-risk funds to tide through market risks.
• During market highs or lows: When the markets are rising, equity funds may grow faster. When markets are falling, debt funds may feel safer.
• Periodic Review: Keep checking your policy and fund performance periodically .

Fund switching works best when combined with patience and careful planning.

 

ULIP Fund-Switching Scenarios

Fund switching can be done in the following scenarios:

 

1. Life Stage Switching

   Your needs and risk appetite changes with age. For example, a young individual may invest in equity-based funds for quicker growth. But as they grow older, they might switch to a balanced fund for a mix of growth and stability.

   
   

2. Market-based Switching

   If you understand the market, you might switch funds based on market trends. For example, when the market is uncertain, some investors may switch to debt funds for safety.

 

How to make switch/ shift funds?

Fund switching in ULIPs is a process that might take some research on your part. Once you are certain about the switch, the process will not take you very long. Fund switching can be done both online and offline.

For offline fund switching, you might need to visit the nearest company office, online transactions can be done via the insurer’s web portal with your login credentials.

 

Bajaj Allianz Funds

The fund options under Bajaj Allianz offer something for every kind of investor. Depending on your financial needs and risk appetite, you can choose any of the following or a combination of them. Typically, the funds can be classified into the following categories:

 

1. Equity Funds

   When you choose equities, your premium is invested in the equities of listed companies that can be large cap, mid cap or small cap. Here, the main objective is capital appreciation.

   Risk-o-Meter - High risk

   
   

2. Debt Funds

   Here, the investment is made in debt-based securities and other income instruments, such as corporate bonds, debentures, etc. As they carry medium risk, they offer more stability as compared to equities.

   Risk-o-Meter - Medium to low risk

   
   

3. Liquid Funds

   Also called cash funds or money market funds, here, the funds are invested in debt securities, which come with high credit ratings. As they are easy to redeem, they are highly liquid and are ideal for the short term.

   Risk-o-Meter - Low risk

   
   

4. Balanced/ Hybrid Funds

   These funds in ULIPs allow a mixed asset allocation. Here, as an investor, you can benefit from equities as well as debt funds. You get the advantage of capital appreciation as well as more reliable earnings.

   Risk-o-Meter - Medium risk

 

Bajaj Allianz life insurance fund switching allows you the flexibility to help your investments. Take a look at the options you have:

 

How to Switch Your ULIP Fund Portfolio to Optimize Returns?

Switching funds within a ULIP allows the life assured to adjust their portfolio according to changing market conditions and financial goals. This option may help investors manage portfolio risk over the long term by reallocating across equity, debt, or balanced funds. To switch funds, you must:

 

Step 1: Know Your Goal

First, understand your goal, whether it’s long-term growth, short-term safety, or both.

 

Step 2: Analyse your risk appetite and investment horizon

If your risk appetite is high, you can consider switching to high risk high returns equity funds. Likewise, if your risk appetite is medium to low, you can consider debts or balanced funds. Additionally, if your investment horizon is long, you can add high risk funds in your portfolio as short term market fluctuations will not impact returns in long run.

 

Step 3: Select the New Fund or Change Allocation

Pick the fund that aligns with your goals, risk appetite. You can choose from equity, debt, or balanced funds. You can also change the percentage of fund allocation.

 

Step 4: Place the Switch Request

Submit a fund switch request. If you do it before 3 PM on a working day, the same day’s NAV (Net Asset Value) applies. If it’s after 3 PM, the next working day’s NAV applies.

 

Step 5: Confirm the Switch

Once the request is processed, you’ll get a confirmation. Your new fund will start working from that day.

 

Cost of Switching Funds in ULIP

ULIPs come with the innate benefit of spreading your investment across various kinds of funds. The division of the investment can be on the basis of the risk you are willing to take. You have the edge, as the ULIP fund switch allows you to balance your portfolio from time to time.

In some cases, a set number of free fund switches are allowed in a policy year. In case you exceed this number, there may be some charges that you’ll have to pay, depending upon the insurer. The maximum cost of switching funds in ULIP can be ₹500 per switch.

 

Impact of Fund Switch on ULIP

ULIPs are life insurance plans which offer life insurance coverage and market-linked investments . ULIPs allow you to switch between different funds within the policy.. However, switching funds in a ULIP affects your policy in several ways that the life assured should understand before making a decision.

• Charges: Most ULIPs offer a few free switches per year. After that, charges may apply. Always check your policy document.
• Returns: A smart fund switch based on market performance or life stage can help you optimize your returns.
• NAV Value: The NAV is the per-unit market value of the fund's investments. The NAV value declared on the day you submit your request for fund switch will determine the number of units you get.

 

FAQs

1. What are some ground rules to switch funds effectively and get good ULIP returns?

   If you are looking to grow your wealth through ULIPS, keep in mind the following rules:

   • Pay your premium regularly and on time
   • The investment funds that you choose should match your risk appetite
   • Master the art of ULIP fund switch to benefit from the changing market trends
   • While partial withdrawals may be allowed, try to avoid them to maintain the corpus.
   
   

2. What is the cut-off time for the ULIP fund switch?

   As long as you have paid your premiums, you can request a ULIP switching option anytime you want. If the request is made on a working day before 3:00 PM, the same day NAV will be applicable. In case a request is raised after 3:00 PM, the NAV of the next working day would apply³.

   
   

3. What is the difference between fund switch and fund redirection?

   With ULIPs, you have the freedom to choose between debt funds, equity funds and balanced funds. As per the changing dynamics of the market, you can opt for fund switching. This means that within your policy, you can switch the investment from one fund to another.
   Redirection, on the other hand, refers to the allocation of future premiums to a different fund. Typically, it is at the time of policy purchase that the desired fund allocation is done. However, in case a policyholder wishes to change the initial/ original allocation, then redirection comes into play.

   
   

4. How often can I switch funds in my investment plan?

   In some cases, you can switch between funds as many times as you want. But keep in mind that fund switching may come with a charge. Some companies offer a certain number of fund switches without charge, while some may charge every switch.

   
   

5. Is there a limit to the number of fund switches I can make?

   Fund switch means transferring the current funds in the policy to another fund of your choice. Usually ULIPs allow unlimited fund switches, but some could be free while others could attract a nominal fee.
   There is certain limit for switching of funds per year which may vary from insurer to insurer. Post that, there may be a certain fund switch charge. It is recommended that fund switching should be a well-thought process. When required, try to switch your funds in an organized manner.