Most Insurers offer a wide range of funds to suite’s one’s investment objectives, risk profile and time horizons. Different funds have different risk profiles and thus, varied returns.
We have listed below some common types of funds that are available:
|Sr. No||General Description||Nature of Investments||Level of Risk|
|1.||Equity Funds||Invests in equity shares of the companies listed on the stock market. This may be further split into small-cap Equity, Mid-cap equity and Large-cap Equity||High|
|2.||Debt Funds/ Interest Income Funds||Invested in corporate bonds, government securities and other fixed income generating instruments||Medium|
|3.||Cash Funds/ Money Market Funds||Invested in cash, fixed deposits or other money market instruments which are liquid.||Low|
|4.||Balanced Funds||They are a combination of Equity and Debt i.e. a balance between Equity and debt.||Medium to high|
The funds of a ULIP are similar to the various fund classification of a mutual fund. It is due to the basic nature of both the investment products. However, it is not that easy to switch between mutual funds. Refer our Article on how to switch between mutual funds.
ULIPs are favorable due to the option to switch between different funds as per our needs and requirements. The primary objective of switching funds is to leverage from the funds performing well. If your funds in your portfolio are not performing well then the peers, you may choose this option.
There is a basic cost involved in switching of funds which depends on the ULIP that you own. Some ULIPS, allow one transfer free and anything beyond that has a fixed cost. Refer our Article – Various Charges associated with a ULIP.
Also, many people make use of switching to meet their goals and make the most of the tax benefit. You may refer to our Article —-
To ensure that you make the most of this option, you must keep a track of the funds’ performance to make an informed decision.
- Asset Allocation: You must switch to re-balance your portfolio, to maintain your asset allocation or to make the most of a sudden change in the market condition. This change in market condition may also require you to review your asset allocation. As discussed for this purpose switching is cheaper than selling and re-investing mutual funds.
- Life stage Needs / goal-based approach: when a switch is required to achieve your goals set in mind, you must do the same using this option in ULIPS. For example, if you have invested for a 10-year long-term goal in an equity-based fund. Based on the rules of goal setting, from the 7th year, you should start switching your fund to a debt fund to not lose the gains made in an equity fund. Such a switch is cheaper and more convenient with a ULIP than with a Mutual Fund.
Since ULIPs are long-term market-linked plans, you should review and manage them appropriately to optimize your asset allocation, minimize the risk and maximize your returns. If you are not confident about managing it yourself, it does mean that you should lose the opportunity of growing your own wealth. You can always take advantage of the auto-manage options offered by the insurer or appoint a financial advisor who shall do the same for you.