Use free switching options in your ULIP
As uncertainty over the global economic environment persists many expect domestic markets to be volatile in coming days. Some financial advisors have recommended using this period to review the portfolio on a daily basis, and book profits on the days markets soar.
While investors do review their mutual fund and other investments on a regular basis, many often ignore their investments in unit-linked insurance plans (Ulip), treating it as a passive investment necessitating little more than regular premium payments on their part.
Most investors do not make use of the facility to switch between funds offered by Ulips which can help them tweak their asset allocation in line with their assessment of the market situation. Typically, policyholders are allowed to make four free switches between funds offered by their life insurer in a year.
However, many Ulip holders fail to make use of even one, say financial planners. Since a Ulips' performance is market-linked, it is imperative for policyholders to actively monitor the markets and take a call on switching funds accordingly .
For instance, says financial planner Amar Pandit, "In the current scenario, those who have selected the pure equity fund option can think of partially transferring a part of their money to a debt fund option to book profits, but only if they have made a significant profit of say 70-100 %." A profit of merely 15-20 % will not merit using the facility.
Since it is impossible to time the market a decision should be taken based on your financial goals. "If you need the money next year, then you can think of partially transferring the money to a debt fund which will preserve your capital and earn some return," suggests Mr Pandit.
On the other hand, if your goal is 5-10 years away, you can stay put in the pure equity option. "In fact, policyholders can use this opportunity to increase investments into equities — buying into equities when the markets are down can get them more number of units, which will push up the realizable value at the time of exiting their Ulips," advises GLN Sarma, chief actuary, Bharti-AXA Life.
"Those who have chosen a balanced fund option or those whose investments are skewed towards debt can consider using the switching fund option and transferring some amount to the equity fund offered by their insurer, if they are comfortable with changing their risk profile."
Source: Economic Times
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