premium redirection in ULIPs

Manish had purchased a ULIP five years back. He had accumulated a considerable corpus by now and was happy with his investment. However, with the uncertainty in market conditions, he was worried about the erosion of his fund value. Most of his money was invested in equity linked funds under ULIP.

He wondered if there was a way he could transfer his money to fixed income funds to protect his wealth from any future volatility in the markets. Did his ULIP have an allowance for such a shift? If yes, it could help him.

Life is unpredictable. However, change is the only constant. Looking back, we might wish that we could change certain decisions we made in our own lives. Often we can’t. What’s done is done. Which is why the importance of thinking wisely before taking a decision, especially when it comes to money matters, cannot be taken lightly.

This holds true for equity and debt investments as well. In certain market conditions, it is favourable to stay invested in equities, while in others, such as when interest rates are falling, it makes sense to invest in debt.

The reason above is why your investments need to be flexible, so that you can fine (not required) tune them as per the prevailing market conditions. And this is where a ULIP scores over other traditional forms of investing money. It offers a cost effective way for you to switch between equity and debt related investments by redirecting ULIP premium when you instruct so. Now if you are wondering what is premium redirection in a ULIP, read on further.

Once you have completed a year since you bought your ULIP, you can request your future premiums to be redirected in an alternate proportion to the various unit funds provided in the ULIP. Your current fund will remain untouched and the premium amount will be used to buy units in the new fund, which can be either debt or equity as per your preference.

Premium redirection in ULIP has to be done before the due date of your next premium. Redirecting ULIP premium has no effect on your preceding premium and it is not chargeable. A maximum of two premiums can be redirected in a year by the policyholder.

To better understand what is premium redirection in a ULIP, you also need to be aware of what is a fund switch, so that you don’t confuse the tow. Switches help to move some or all of your units from one unit linked fund to another within the same plan. For instance you can partially or fully transfer units from an equity fund to a debt fund, or vice versa, or a combination of both. This rebalancing of your prior investments is referred to as a fund switch, whereas ensuring that your future investments are changed, refers to premium redirection in ULIP. You can make unlimited fund switches in a year.

For example, let us say you allocated 40 percent of your money to debt and 60 percent to equity. With a fund switch, you now want 80 percent of your investment in equity, so the fund manager will move 20 percent of your money from debt to equity. A few months after making this fund switch, you expect interest rates to fall, and want to optimise on returns in the debt market. So you instruct the fund to redirect 60 percent of your future premiums towards debt. Your existing units will not be shifted into a debt fund. Redirecting ULIP premium will make sure that all the future premiums of your policy will be invested in 60 percent debt and 40 percent equity.

Future Generali Big Dreams Plan allows you to redirect your premium thus allowing you to ride through the bull and bear cycles of the market and judiciously plan your investments in tune with these trends. You not only get to participate in the performance of capital markets but also decide asset allocation in different types of ULIP funds from the low risk Future Income fund to the high risk Future Midcap fund.

While the former invests in fixed income and money market instruments, the latter invests 80 percent in equity, out of which at least 50 percent is in midcap stocks. Now that you have understood what is premium direction in ULIP and how it works, to give you more control over your money, you can easily review and rebalance your investments as per your financial needs.