ULIPs offer the unique advantage of moving between asset classes without any cost or tax implications
The Unit Linked Insurance Plan or ULIP is an insurance policy which allows you to divide your investment into two parts – one towards securing your life and the other towards wealth creation through investments in equity and debt instruments. One of the factors that make ULIPs sought after is the fact that everything in the ULIP is transparent and well regulated. It also allows policyholders the benefit of using a single financial instrument to save, protect and invest.
When investing in ULIPs, you have the choice to invest across different types of funds offered within the ULIP. This allows policyholders to base their investments on the principle of asset allocation, which states that for optimal results from investments, one should invest with the most ideal asset allocation. This is nothing but investing in both debt and equity, in a combination that suits your risk profile as well as investment objective.
The fund switch option of ULIPs enables policyholders to move their investments between different types of fund options available to benefit from the fund-switch facility it offers. The upside—you can switch between available funds without any charges being levied for a fixed number of times in year. At the same time, if you cross the limit on the available free switches, you could be charged a small amount per switch that you could pay for and benefit from.
Switch strategy
One way to make fund switches work for you is to base the switches on the life stage you are in and the other is to make a switch with the prevailing stock market conditions. You also get the benefit of zero tax implications when you switch within funds, compared to a similar option that is available with mutual funds, where switch is treated as liquidation of one investment and investment into another.
What more, you can switch between funds within a ULIP by going online or using the call-centre facility provided by the insurer to affect your switch. With this facility, you could benefit from the right blend of debt and equity investments and increase the returns on your ULIPs investments.