Monday, July 22, 2024

Switching funds in ULIPs: Factors to consider

As an earning individual, you might have a list of goals that you wish to accomplish at different stages. These goals could be wanting to buy a home by the age of 40 or retiring by the age of 50. Your goals and when you wish to accomplish them might keep changing with time. However, you do need a stable financial support to able to achieve those goals.

Growing your wealth by investing in a ULIP plan can be beneficial for you. Among the different features of ULIPs, switching of funds is an important one. What is this feature? How does it benefit you? Continue reading to know more about it.

What is a ULIP?

A ULIP is a type of life insurance plan that offers you the dual benefit of investment and insurance. Both components are financed by the premium you pay towards the policy.  In the investment component, you get to invest inequity, debt, and balanced funds. Each fund type has a different risk factor and rate of return. The investment is done on the basis of your requirement and risk appetite.

The insurance component provides your family with a life insurance cover. This negates the requirement of a separate policy. The cover ensures that your gets proper financial assistance in the event of your untimely demise. They can use the money to manage the cost of living and set aside some for emergencies.

What is switching in ULIP?

In ULIPs, you get to invest in the following funds: equity, debt, and balanced funds. Each type of fund has its own risk factor and rate of return. As they are market linked, the performance of the market has a direct impact on the value of your fund as well. Such volatility can severely reduce your returns. To be able to weather such impact on the value of your fund, you have the provision of switching your investments.

For example, 60% of your investment is in equity funds and 40% is in debt. The market is performing erratically, which could reduce the returns you gain from your investment in equity funds. With the help of fund switching, you can reduce the percentage of your investment in equity funds and reallocate them to debt funds. This way, you keep getting consistent returns without it impacting your fund value.

Factors to consider for switching

The following are the factors you should consider before you switch your investment:

  1. Market performance

As mentioned earlier, the performance of the market is one of the main factors that should be considered before fund switching. When the market is performing well, your returns will be good. However, sudden volatility in the market impacts your returns. Keeping an eye on how the market is performing helps in ensuring that your returns do not get impacted.

  1. Life goals

The need for finance to fulfil life goals is one of the reasons why people opt for ULIPs. You might a goal that you want to accomplish at a certain life stage. For example, if your child wishes to go abroad for higher education, you will consider switching from equity to debt fund. As debt fund has a lower risk factor compared to equity, you will keep getting stable returns without the risk of the returns getting impacted. This way, you can do a partial withdrawal to cover the education loan repayment.

  1. Risk appetite

As you get older, you become more conscious about taking risky financial decisions. While in the beginning you might have invested heavily in equity funds as you were earning and managed to invest more, this is not the case at a later stage. Your requirements and expenses change as you get old. This means investing less in a high-risk fund and instead switching to a low-risk fund.


These are some of the factors that you should consider before switching your investment from one fund to another. You can use the ULIP calculator to see how much you need to invest on the basis of funds you choose.

Lindsey Ertz
Lindsey Ertz
Lindsey, a curious soul from NY, is a technical, business writer, and journalist. Her passion lies in crafting well-researched, data-driven content that delivers authentic information to global audiences, fostering curiosity and inspiration.

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