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Making the right switch

A lot of options are available for unit linked insurance plan investors not only in terms of schemes but also while choosing the area of investment. Arnav Pandya reports.

india Updated: Apr 21, 2008 03:01 IST
Arnav Pandya

A lot of options are available for unit linked insurance plan investors not only in terms of schemes but also while choosing the area of investment. The options from fully investing in equity to fully investing only in debt and the returns and the risk will be commensurate with this kind of investment.

Often investors find that they have selected an inappropriate investment mix and don’t know how to get out of the situation. However, it is at such times that they might get a good window of opportunity.

Choices
There are a lot of choices that will vary depending upon the insurance company. The choices represent not just an investment opportunity but also the fact that there can be a shift in investment according to the needs of a person. This is important as it gives individuals a chance to restructure their investment in an appropriate manner at the right time.
For example, a person can shift from a high risk all equity option to a balanced option to moderate the risk element in their policy because they should not be taking a very high risk.

Switch cost
An individual must factor in the cost that he or she will incur when they switch from one area to another. In many cases the cost is nil because the insurance policy itself allows the investor an opportunity to do this kind of switching a certain number of times during the year without any cost.

In such a case there are no additional cost factors that will come into play and this has to be built into the working. If there is some cost then this has to be considered in the equation of whether the switch is beneficial.

What to move
The exact movement of funds will depend upon the requirements of a person but an investor should try and get into those areas where there is adequate opportunity.

This can mean that if they want an exposure to the more risky side of equities then making a switch when the markets have fallen would be a better plan.

It is not possible to know the exact movement of the market so getting this decision right is next to impossible. Similarly investors who might want to reduce their risk can switch to other options. Simply put having a plan and executing it is a better way of going about things.

The author is a certified financial planner