Switching ULIP Plans

I had purchased UTI Infrastructure ULIP in 2008. I had invested Rs 1 lakh in it, but today the value of my holdings is down by 34 per cent. What should I do? Should I go for the fund switch option?
-Ranjeet

You should accept this loss because it has tested your patience for too long. It will be prudent to quit this policy and move to another better-performing vehicle.
The fund switch option is provided by mutual funds, and not ULIPs. Most ULIPs provide 3-5 asset allocation plans that have different kinds of exposure to equities and fixed income. Depending upon the state of the market, investors are allowed 3-4 switches during a year. But such switches are not prudent for investors. You shouldn’t switch from one plan to another depending on the state of the market, because that would amount to market timing. Any switch that you opt for should be dependent on the state of your personal financials. For example, if you get closer to your goal, it becomes prudent to get conservative and have higher exposure to fixed income. Investors should look at this facility from that standpoint.

This article was originally published on February 01, 2012.