The cost of living has increased as time has gone by. What your money got you a decade ago amounts to far less today. While incomes have increased, at times it is possible to wonder where all your money gets spent. Savings, as a result, are hard to make. While it is important to save money, it isn’t always as clear-cut as one would imagine. Moreover, making investment decisions such that the money you have set aside can multiply and grow traditionally requires a certain amount of knowledge. That being said, unit-linked insurance plans are one of the preferred investment options for people wanting to make disciplined investments that allow for the generation of wealth.
What is ULIP?
Unit-linked insurance plans (or ULIP) are one of the cleverest forms of insurance presently available in the market today as they have a dual role. They serve as both, an insurance plan as well as an investment product. In addition to the life cover they offer, ULIPs also give the policyholder the option to invest in their choice of funds. These options include equity funds, debt funds or a mix of the two. In this way, ULIPs offer the benefit of investment and insurance.
How the ULIP fund switching feature works
Unit-linked insurance plans come armed with the potential to switch funds thereby providing the policyholder with ample amounts of flexibility. As an investor, they are entitled to invest their money in debt or equity funds or a portfolio which features a mix of both equity and debt funds. Under this policy, policyholders are entitled to transfer their investments from one ULIP fund to another. Moreover, these transfers may be for partial or full units which makes them all the more suitable.
When is the right time to switch?
Since policyholders are entitled to switch from one ULIP fund to another as and when they desire, they may wonder what time they should take this opportunity up. Ideally, factors policyholders must consider when deciding on an appropriate time to switch are as follows.
Tough market situations that are hard to navigate may encourage a switch as a means to tackle the present volatility in the stock markets. Volatile market conditions have the potential to hinder your investments and expose them to risks. Switching funds at this point in time are recommended as debt instruments may be safer at this point in time. Once the market goes back to being stable, policyholders can always switch their investments back to equities. Although is not always possible to accurately time the switch with the market fluctuations, it is an effective tool to mitigate the risk to a certain extent.
Policyholders can switch funds when their plans are just short of maturity. Once investments have become particularly bountiful and are just short of maturity, switching funds to safer alternatives such as debt, might be a safe bet. Policyholders should make these moves keeping in mind the unpredictable nature of the stock market as this nature of the market has the ability to wipe away funds which may not be easy to recover.