Switch In Time

Through switching, you can rebalance your Ulip portfolio to adjust to market movements and maintain the desired asset allocation Deepti Bhaskaran-outlook

How To Switch Step I Fill up a fund switch request form Step II Fax or deposit the form at the nearest branch. You could also contact your agent Step III The request will be processed the same day if the insurer receives it before 3 pm. Otherwise, it will be processed the next day Online investors can log in with their ID and password, provide policy details and fill up the request form online. Worried that the returns on your unit-linked insurance plan (Ulip) will nosedive along with the market? Planning to pull out from the plan to cut future losses? Don’t take that step yet. Ulips come with various fund options, ranging from pure equity to pure debt, and give you the freedom to move between these. In insurance parlance, this is called switching. Ulips give long-term investors the option to rebalance their portfolio in accordance with the movement of the markets. Says G. Murlidhar, chief operating officer, Kotak Mahindra Life Insurance: "Markets are still bottoming and one could systematically switch from debt to equity if the horizon is long." Fund options All Ulips offer three basic fund options—debt, equity and balanced. A debt fund primarily invests in government securities, company deposits and money market instruments. An equity fund invests in equities and a balanced fund invests both in equity and debt instruments. Among other fund options are security-specific funds like money market and gilt funds, and sectoral equity funds like mid-cap and energy funds. At the time of buying a policy, the premiums are invested in one or more funds of your choice. Switching Typically, up to four switches are free in a year. Once you have exhausted your free switches, the insurer charges Rs 100-500 from your fund value for every switch. Says Murlidhar: "Switches enable customers to rebalance their portfolio to maintain their asset allocation in the long term. There is a limit on the number of free switches as there is a cost implication. If an investor switches more than four times in a year, he could be actively trading and timing the market. Such cost should be borne by him as he could be gaining from the exercise." However, some policies offer a very high number of free switches in a year. For instance, HDFC Standard Life’s Unit Linked Endowment Plus II offers 24 switches per year, while Reliance Super InvestAssure Plan offers 52 free switches in a year. "For a long term investor, frequent switching makes little sense as that would border on trading," says Murlidhar. You can also redirect your fund allocation at the time of policy renewals. Says Sanjay Tripathy, executive vice-president and head (marketing), HDFC Standard Life: "Policyholders can stagger the premiums in various funds as per their choice. Rebalancing of existing funds can be done through switching and new premiums could be redirected." When to switch? "Switches should be seen as a tool to maintain asset allocation," says Murlidhar. Financial planners advise that those with an investment horizon of 20 years or more should have a debt-equity ratio of 20:80. As they approach the fag end of their term, the allocation should slowly change to the exact opposite—80:20. Switching gives the opportunity to maintain this allocation. Switching can also be used to secure your investments as you come closer to your policy’s maturity year. Says Murlidhar: "Switching should be based upon factors like the time left for policy maturity or the time left for one’s income to stop as that would determine one’s risk-taking ability. The principle of more debt with higher age is applicable here. Also, when one approaches a goal, one could lock in the returns from equity by switching to debt." Use switching smartly to get over the downturn blues and to stick to the desired asset allocation. Source.outlook