Definition
Fund Switch
A fund switch is the movement of a ULIP's accumulated units from one investment fund to another, such as from equity to debt.
ULIPs let policyholders reallocate their existing fund value across the available fund options to manage risk or react to markets. Insurers typically offer a number of free switches each policy year, after which a small switching charge may apply (subject to IRDAI caps).
Fund switching inside a ULIP does not trigger capital gains tax, unlike redeeming and re-buying mutual funds, which is one of the structural advantages ULIPs market. Some ULIPs also offer automated strategies like life-stage based asset allocation or systematic transfer that perform switches on the holder's behalf.
Related terms
- Asset AllocationAsset allocation is the decision of how to divide your portfolio among major asset classes — such as equity, debt, gold and cash — based on your goals, horizon and risk tolerance.
- Premium RedirectionPremium redirection changes how future ULIP premiums are allocated across funds, without altering the existing accumulated units.
- Unit Linked Insurance PlanA Unit Linked Insurance Plan (ULIP) is a life insurance product that combines life cover with investment in market-linked funds chosen by the policyholder.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.