Unit-Linked Insurance Plans have recently soared up on every investor’s list as a lucrative investment option. Not only is ULIP a beneficial market-linked instrument but also a great choice for first-time investors. The limited number of fund options makes investments easier for various individuals who might not be well-versed with the market movements. Another thing that makes ULIP a better alternative is the fund switching facility. Keep reading to learn what fund switching is and how it works.

What Is Fund Switching in ULIP?

Unit-linked Insurance Plans offer policyholders the dual advantage of availing a life cover and an investment option. After deducting the various applicable charges, your premium is invested in ULIP funds, while you receive a life cover for a fixed policy term. Depending on your risk appetite, you can choose to invest in equity, debt or balanced funds. But what happens when the market becomes volatile, and you cannot afford the risk anymore? This is where fund switching comes into the picture. The insurance provider enables you to switch funds based on your long-term goals, life stage requirement, risk appetite, etc. Thus, you can make use of this facility to earn better returns from your investment.

How Does Fund Switching Work in ULIP?

As a policyholder, you can select the fund type for your ULIP insurance investment. During your policy term, you are allowed to switch funds from equity to debt, or vice versa based on your requirements. There is a limited number of free fund switches that your insurance provider shall offer. After you have utilised the free switches, you will have to pay for any fund changes in the future. In the event where you want to reduce your risk exposure or need stable returns from your investment, ULIP fund switches go a long way in securing your goals.

Benefits of ULIP Fund Switches

Here are some key perks that you can enjoy with the help of ULIP fund switching facility:

  • Enables Investment Based on Risk Appetite

Not every investor wants high-risk exposure when it comes to market-linked investments. Some would prefer stable returns while other investors would like to lower the risks as they age. With the fund switch option, you can easily align your investment based on your risk appetite. If you can afford to invest in equity today but want to move to balance funds after a couple of years, ULIP insurance has got your back.

  • Allows Management of Investment According to Life Goals

In your early or mid-20s, you might not have many responsibilities and thus, would prefer investing majorly in equity funds. But as you start your family, your life goals shall begin to shift, demanding more stable returns. And as you enter your late 40s, debt funds would suit your life goals better as you cannot afford high risks. This is how the ULIP fund switching facility allows you to manage investment according to your life goals.

  • Offers Zero Taxability

In ULIP, there is no tax applicable based on the various fund switches. Apart from the additional charges levied after utilising your free switches, taxes don’t come into play. However, the maturity benefit shall only be taxed as capital gains if your premiums are more than INR 2.5 Lakhs. If it is below this limit, you can be worry-free about taxes on ULIPs.

With this, you can now plan your ULIP returns efficiently based on the fund switching facility. To make the most of your investment, you can take the help of an online ULIP plan calculator. It shall estimate the returns you can get in the future. So, explore the free online tool now!