Making the best out of ULIPs

If you have invested in ULIPs, here are a few suggestions to make the best out of it

Use “Switch” Option to the fullest. (4 are free)
The intent must be to increase the number of units accumulated and in the right bucket.


What are Units and how are they allocated?

Let me explain with the example of ICICI Prudential Life Time Pension Plan. The premium amount is invested in various funds as per your instructions.

For ICICI Prudential Life Time Pension Plan, following are the Funds

Pension Balancer (Balanced)
Pension Flexi Balanced
Pension Flexi Growth
Pension Maximiser (Growth) Plan
Pension Preserver (Short Term) Fund
Pension Protector (Income) Plan


You can choose the percentage distribution on the above funds for your ICICI Prudential Life Time Pension Plan.



Say for instance, I chose the following distribution:

Pension Balancer (Balanced) – 85%

Pension Maximiser (Growth) Plan -15%



Based on the premium paid and the NAV of the chosen funds in the market on that day, the invested money( premium amount) is used to buy as many units of the Fund.

For eg,

* if you paid the premium of 10,000, after some allocation charges are deducted, say 9000 is left.

* 9000 will be divided into 2 buckets—

1. 15% of 9000 = 1350;

2. 85% of 9000= 7650;

* Assume the NAV of Pension Balancer (Balanced) is 25.00 Rs and Pension Maximiser (Growth) is 50.00 Rs

* You would have the following number of units in each bucket

1. Pension Balancer (Balanced) – 306 Units (7650/25)

2. Pension Maximiser (Growth) – 27 Units (1350/50)



What is Switch?

Switch is an option for you to change your fund allocation.

For instance, switch allows you to move from the earlier allocation of Balancer(85)- Maximizer(15) to Balancer(10)- Maximizer(90)



Why Should I switch?

Some funds show better growth than the others.

For instance on the day you wish to redeem your Policy, the NAV of Balancer is 30 and Maximizer is 70,

With the Initial allocation of Balancer(85)- Maximizer(15), you would get =306*30 + 27*70 = 11070

But if your allocation was Balancer(10)- Maximizer(90), you would get =(10% of 9000/25)*30 + (90% of 9000/50)*70 = 12420



Implying, there was a better allocation you could have chosen for maximizing your returns (more than 10% difference w.r.t the initial plan)



Switch helps us by giving options to change fund allocations and hence maximize your returns



How does Switch Work?

Lets build on the above example. To refresh, you had taken the policy with Balancer(85)- Maximizer(15) and you have 306 and 27 units respectively.



The current NAV of Balancer is 30 and Maximizer is 70; You wish to make a switch

You have 3 options: Switch based on percent, units or amount.



Here, I will explain the switch through switch by percent. You can move x% from Fund1 to Fund2.

I wish to move 50% from Balancer to Maximizer.



In current market at the NAV of 30, 50% of 306 units of Balancer would amount to 306*30*50/100 = 4590.00;

Also 4590 is worth 4590/30= 153 units Balancer



With 4590.00, I can buy 4590/ 70(Current NAV of Maximizer) = 65.6 units of Maximizer

Hence my new units allocation would be, Balancer (306- 153= 153) and Maximiser (27+65.6= 92.6)



Your Fund value as per the new allocation (after switch): 153*30 + 92.6* 70 = 11070



If in future, the NAV Balancer is 35 and Maximizer is 90

Per old allocation fund value would be = 306*35+ 27*90 = 13140

Per new allocation fund value would be = 153*35+ 92.6*90 = 13686



Any guidelines for Switch:

When the market is on a low, switch to Balancer
When the market is on a high, switch to Maximizer
This will help you accumulate more units in each bucket

Before you decide to redeem, (one would usually do it when the market is on a up so that you get the max benefit), moving to maximizer should be profitable.