Home >money >personal-finance >How to make that tax-free switch in Ulips as well as NPS

A unit linked insurance plan is an investment product wrapped with an insurance cover. It’s a market linked product that lets you invest in a range of investment funds ranging from pure equity to debt. You can also switch between funds to ensure you maintain your asset allocation. The same is also true for the National Pension System (NPS). What’s more is switch in both the products is completely tax-free. We give you the details.

When you buy a Ulip, you are typically offered an array of funds to invest in, you can choose to put your money all in one fund or distribute your money in any of the funds offered by the policy. If you are not happy with the performance of the fund, you can always make the switch, but keep in mind you can only switch between funds offered by the Ulip. Moving to another insurer or fund that’s not offered by the product means you have to discontinue your policy and then re-invest. In terms of switching, most companies give you a limited number of free switches in a year, after which you pay a charge that’s deducted from the fund value. This charge on switching can cost anywhere between 100 and 500. Some insurers may also need you to switch a minimum amount.

You can make the switch online by accessing your account through the user-ID and password or by approaching the insurer and filling up the switch form. You will need to fill out information such as the funds you have invested in and the funds you want to switch to and how much. Typically if the request is processed before 3PM, the insurer switches the amount on the same day’s NAV, else NAV of next working day applies.

The product construct of NPS works differently. There are four funds under the NPS namely equity fund, in which you can’t put more than 75% of your money, government securities fund, corporate bond fund and alternative asset class fund where you can’t put more than 5% of your money. There are eight fund managers under the NPS that offer each of these funds. You have an option to change your fund manager once and change your funds twice in a financial year. You can switch between funds, under the same fund manager up till the permissible limit. For instance, you can’t put more than 75% in equities but you can put all your money in the government securities fund. Again, you can opt for the online mode to make the switch free of cost. Offline, a transaction charge of 20 will apply. Keep in mind that when you place a request for a switch, it doesn’t reach the fund manager immediately; it first goes to the central record keeping agency and then to the fund manager. This means that the funds switch can take 2-3 days to complete.

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