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What is Fund Switching in ULIPs?

Published On Apr 20, 2021 12:00 AM By InsuraneDekho

Unit-Linked Insurance Plans are available with the feature of fund switching, which provides substantial flexibility to this financial product. This option provides a policyholder with the option of investing into a variety of investment options i.e debt or equity funds or a combination of both debt and equity funds.

Under an ULIP, a policyholder can transfer their investments from one fund option to another. The investor can transfer the units fully or partially between ULIP funds, which include equity, debt or balance funds.

Key Factors to Consider During Switching Funds In ULIP

Switching of funds primarily depends upon the risk appetite of the investor, which means the level of risks you are willing to take during a volatile market scenario. It also depends on the long-term financial goals set by you.

Also Read:- How To Choose A Right ULIP?

Many insurers advise investors that, over a longer term period, investors should take more risks by investing in an equity fund earlier, and then gradually shift to debt funds when approaching maturity. In ULIPs, this is often referred to as ‘Years to Maturity’ based portfolio option.

The fundamental principle of this option is that equity funds are more exposed to market volatility as compared to debt funds. The investors can safeguard themselves from any sudden volatility in the market by striking a balance between both the types of funds.
An investor can avail of fund switching without any hassle, if he is not satisfied with the fund’s performance after tracking the performance of the specific ULIP when its periodic net asset value is declared.

Anyone can discontinue premium funding from loss-making funds. In case of a sudden crash in the market, investors can shift a major part of their funds to the safer debt funds, and transfer them back into equity funds once the market is stable again. This helps the investors to manage risks, besides protecting their savings.

ULIP Fund Switching Charges - Explained

Most of the Unit-Linked Insurance plans do not charge for as many as 8 switches in a policy year. If an investor wants to get more switches, a minimum amount as fund-switching fee is levied by the insurer.

Many insurance companies have the salient feature of unlimited switches to completely enable the policyholders to make as many switches they require to make in a policy year. For investors who do not have the time and energy to monitor the market or to take a decision for switching, the insurers may provide an option for an asset allocation fund, where the insurer’s fund manager can make switches between equity and debt funds after considering the ongoing market scenario.

You May Also Like to Read:- What is the Right Time to Purchase a ULIP?

Is Investing in a ULIP a Good Decision?


If you have a zest for investment and desire to yield stable market-linked earnings, ULIPs are the best option available to you. The functions like fund switching provide the required flexibility to the investor. There exists a wide investment horizon for you if you have the right skill for it.

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