Unit Linked Insurance Products popularly known as ULIPs are the most selling product in the Insurance market. Almost half of the Indian public invests in to ULIPs. They sell like hot cakes in the Indian markets with their promise of giving market linked returns combined with the benefits of insuring your life in case of any unforeseen events.

To describe ULIPs further, they have four or more types of funds they invest into. The investor has an option to invest into which ever fund he wants to invest into. This depends completely on his risk taking ability and time horizon of investments. The most risk taking individual can opt for an option which allows him to take 100 per cent exposure into the equities market, where as the most risk averse investor also has an option of putting the entire amount into the safer instruments. The key issue over here is to match the right asset allocation to the right risk taking ability in accordance with the time horizon of investment.

Along with this feature of ULIPs, you also get an option of switching in between funds. Generally you gets four to six free switches per annum. After you exhaust the free switches you have to pay per switches. Say you chose a fund with 100 per cent allocation towards equities. You have been invested into this fund for almost a year now with the equity markets performing amazingly well. Now you think you have made enough and you think you prefer shifting a part or whole of your corpus towards a less risky portfolio. You have an option in ULIPs where you can choose to move your portfolio into 60 per cent of equities and 40 per cent of debt.

Does the above give you an impression that I am asking you to time the markets? No, because I am a firm believer that no one can perfectly time the markets. The strategy to be applied here is to do a goal planning in which you state that this year you want a return of say 20 per cent per annum. Now as soon as your portfolio in to equities shows a return of 20 per cent even if it is only two months from the date of investment, you should shift at least 50 per cent of your portfolio into debt instruments by using your switch options.

For deciding when to switch, you should keep the following in mind:

• Goal Planning: The entire process is how you manage your finances depends on the goals you have in your life in terms of money needed for the same and what rate of return you have to get to achieve your goals. If you have already collected enough money to reach your goals then you should switch your money in to less riskier options.

• Asset Allocation: This is probably the most important thing to be kept in mind when you plan your finances for the future. The key is to get the expected returns by striking the right asset allocation and diversifying your portfolio. Any time your desired asset allocation changes by huge margins, you should use your switch options to match it over again.

• Risk Appetite: The process of goal planning and asset allocation depends on the risk appetite you have. You should always try to analyze how much risk you can afford to take. In case your risk appetite says an asset allocation of 80 per cent in equities and 20 per cent in debt, then you should never invest in to 100 per cent equity fund. You should switch as soon as your equity portfolio grows out of proportion in comparison to the debt part.

• Time Horizon: Time horizon is very important. The closer you get towards reaching you goal you should keep moving your portfolio in to safer options rather than too much of equities.

Abhishek Kumar Singh is a Certified Financial Planner working at ApnaPaisa Services Pvt. Limited.