Switch option in an ULIP

By | May 17, 2009

Switch option is available with all insurance companies which put ULIPs one step ahead of Mutual funds. One can change the type of fund as their wish without changing the insurance plan.
Common doubt arise would be regarding the number of units allocated in case of a switch . This can be clarified by the following example,
One has 1000 units at 20 rupees/unit in an equity fund. He want to switch his entire position to a debt fund which is currently quotes at 10 rupees/unit.
Value of equity fund is 1000 units * 20 rupees = 20000 rupees.

After switch option, the customer will get 2000 units, ie
the equity fund value is 20,000/- and one unit of debt fund quotes rs. 10/- so he will get 2000 units.
But even after the switch option, the fund value remains the same,, only the number of units get changed depending on the NAV of destination and origin fund.

Why Switch option?
Normaly if the investor doesn’t follow the market and is a long term invester, he doesn’t need to worry about this.
But for an active investor, it will be a good helping hand.
If the investor feels the market is hot and may fall soon he can switch from an agressive fund to a conservative fund and vice versa.

 

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