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One thing you should know about ULIPs to increase your returns

  8/10/23 5:07 AM

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“When you give people too many choices, it makes them hesitate and not buy stuff.” Guy Kawasaki.

The investment market has become complicated with many mutual funds and insurance companies selling so many investment plans. There are various add-ons which further complicate the decision-making process. For a layperson, it is very difficult to choose the right plan and options.Be that as it may, we have no choice but to deal with the complex nest of investment options around us.

We at Edelweiss Tokio Life Insurance, strive to ease your decision-making process. Here is one more piece which will help you understand your ULIP investment feature. This will also help you to increase your return on investments.

ULIPs (Unit Linked Insurance Plans) are popular investment cum insurance plans. These plans are also very well received by the investors in the market. Since many people are buying this product, it is all the more important for the investors to know some of the key features which might have skipped their attention while signing the cheque.

Most of the investors might be aware of the cost levied on the investments and tax implications, but one important aspect investors usually ignore is the option to switch the fund. Knowing this and prudently using this option could have a real positive impact on your maturity proceeds.

Handpicked related post: Tips To Invest In ULIPs With Lower Cost

ULIP Switching Option:

The investments you make in ULIPs serve two purposes:

  • It gives you a life insurance policy
  • And invests the remaining amount in the funds of your choice to generate returns.

There are costs like mortality charges, policy administration charges etc. to keep the policy alive.

The interesting part is the investment of the remaining amount after the company apportions the above charges. These funds could be a debt fund or equity funds or a mixed fund. Like mutual funds, these funds also invest in various financial instruments. Investors need to opt for a fund as per their risk appetite.

Now, suppose after a few years, you think the fund you have selected is either not performing well or your risk appetite changes. In these scenarios, you have an option to switch to another fund of your choice.

Most of the passive investors forget about this important switching option. This could have a huge impact on your maturity proceeds.

Imagine the fund you have selected is generating 7% returns p.a. and another fund in the similar risk profile generates 9% returns p.a. This 2% extra over the tenure of your investments could be big differentiators of the maturity proceeds. For examples;

  • Rs 5,00,000/- invested for 10 years for 7% is equal to 10,04,830/-
  • Rs 5,00,000/- invested for 10 years for 9% is equal to 12,25,678/-

This is just for the 2% rate difference. Think of the difference it could make for higher rate differences and higher amount of investments.

There is a cost of switching the fund, but that should not deter the investors to switch to a better performing fund.

Caution: It is advisable not to switch the fund to an equity-linked funds on two occasions:

  • When you are a couple of years away from the maturity.
  • When you are near your financial goals for some important event in life.

Equity market volatility may impact your maturity proceeds. To safeguard your interest it is better to switch from equity-linked funds to debt funds a few years before the maturity.

ULIPs, unlike a pure insurance policy, requires the investor to remain aware of the fund’s performance.

Remember, you need to invest money and time both to earn better returns. Isn’t it time well invested?


Aastha Mestry - Portfolio Manager          

An Author and a Full-Time Portfolio Manager, Aastha has 6 years of experience working in the Insurance Industry with businesses globally. With a profound interest in traveling, Aastha also loves to blog in her free time.

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