Future Generali

How fund-switching in ULIPs make them a flexible, all-round product

A Unit Linked Insurance Plan (ULIP) is a product that offers both life insurance and investment options at the same time. The insurance company will put a portion of your contribution towards life insurance and the rest into an equity fund or debt fund, or a fund consisting of a combination of the two. It can be modified to suit the investors' needs.

According to the investor’s risk appetite, the fund-allocation can be modified thus making the product very flexible. If you are a conservative investor, you might want to invest in a debt-based fund, while if you are less conservative, then you will likely be interested in an equity-based fund. Usually, the investor is allowed to make up to 4 modifications during the year. 

Insurance companies generally offer 4 varieties of ULIPs , known as ‘growth’, ‘equity’, ‘balanced’, and ‘income’. They are attractive to new investors as one does not need to keep track of each company that he/she has invested in, as you are only allowed to choose out of one of the varieties mentioned above. At the same time, it helps the individual begin to take an interest in the financial world since he/she would need to have some necessary awareness if they are interested in making switches.  

The debt market is typically less volatile than the equity market, but the equity market offers higher returns. There are times when the equity markets are on a bull run, and if the investor is someone who takes an active interest in equity markets, he/she can capitalise on the trend due to the flexibility that the plan offers. Similarly, when the investor judges the market to be more bearish, he/she can switch to a more debt-concentrated portfolio. 

It is also important to note that a ULIP has a lock-in period of 5 years, which means that it allows you to plan for the long term. Additionally, there is more than one tax benefit that the plan provides, in that the premium paid towards the ULIP is eligible for a tax deduction, and the returns of the policy on maturity are tax-free. 

ULIPs make for good, all rounded products as they are relatively safe, offer good returns and tax benefits, and allows the investor to participate in the structuring of the plan actively.

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