ULIP’s are basically long term investment. But despite being Long Term in nature they are Return Maximizing tool. The return is maximized through the well known option provided itself in the ULIP product SWITCHES. Nowadays Each Ulip comes with a Switch Option giving opportunity to the policy holder to manage his funds and maximize the Returns over the Long term.
The portfolio of you ULIP particularly the equity portion have revived much from the earlier correction which led to many ULIP Equity portion getting devalued by almost 75%. India’s main stock index has more than doubled since early March but more than 95%.So its high time to use the Switch Option of your ULIP to book profits and switch over to Debt option.
If one is having a 60% investment in Equity option and the rest in Debt option, then one should switch over 40% of his Equity to Debt Fund.
1. He books profit on the 40% Equity Fund,
2. The 40% Switching over to Debt Fund from Equity Fund includes the capital invested as well as the Accumulated Return or Profit.
3. If the market goes for a tailspin /downward from these higher over stretched valuations of stocks then his Equity Profit is protected by switching over to Debt Fund.
4. This also gives an opportunity to the investor to do investment in Equity Option once there is a correction.
5. He works a Fund Manager of his own by making use of the Switches.
6. The ULIP product turns out to an Investment Maximizing Tool by using the Switches.
The switches makes the process of making investment grow like a Mango Tree in the Long Term. Many of us have heard of Switches, but failed to know the hidden benefits if switches.
Now many of my friends might argue that the market might go much more higher levels touching the magic figure of 21000.Now this is an never ending debate that in which way the market will go. But here I would like to accentuate and draw the attention of my readers.
The Sensex have scaled close to 17000 .The Nifty scaled to 5000 levels, giving less space for investors to go for a fresh Buying at these levels. The individual stocks are trading at a higher valuation resulting skeptical movement among the investors . All the Large cap and mid cap are trading at much higher levels giving less space for buying at this stage
Keeping the performance growth of IIP we find that 2nd quarter results will drag the Nifty to cross above 5200 level, which also the much awaited figure. In the Near term we find that the 2 Quarter results will start its effect on the market giving direction to the investors. The 2 quarter results will hit the market at the end of 1st week of October beginning with Infosys. The results date is 9th October. The market have a probability of going up and touch that magic figure of 21000.But at the same time we need to look over few things.
But I would like to make cautious Note that we are expecting too much positive cues from the 2nd quarter results. Their we might get some surprises which might change the outlook of the Nifty. In the past we find many situations where we expected too much from the quarter results and any disappointment from them made the investors nervous, finally Nifty went to a tailspin. So be careful with that. This does not mean we are making a negative bias towards Nifty, but History Repeats. Hence the percentage of down ward Bias is more as pressurized from the numerous reasons including over stretched valuation of Large and Mid caps.
In general, investors should take a cautious approach in the markets as there might be some correction due to nervousness before the second quarter results season.
So use switches now and Book your Appreciated Value of your Equity Funds and transfer it to Debt Option. As stock valuation and market is almost Double from its November 2008 lows its is now wise decision to book profits AND SWITCH OVER TO DEBT FUND FROM EQUITY FUND OPTION.
Switches enable the investors to rebalance their portfolio to maintain their asset allocation in the long term.
However, there is a cap on the maximum numbers of fund switches allowed during a year free of cost. Beyond that, the policy holder has to pay a flat charge per switch.
This is one of the closely guarded secrets of Ulips and is to be used over and over again. However, remember that it can also backfire if you are not careful because frequent switching amounts to timing the markets.
But don’t use too much switching as this might result to trading and hence might end up with loosing of Benefits of Switches.
Author:- Indranil Sen Gupta
Financial, Economic Writer and Research Analyst.