Six things Ulip investors should keep in mind

Ulips allow investors to change the investment mix of their plans. You can change exposure to equities if you think the market is favourable. Of the estimated five million Ulip policyholders, barely 20 per cent know about the switching facility and less than 5% actually use it. This is a pity as it gives Ulips an edge over mutual funds. If you don't use it, you may be losing out on a major benefit.

WHEN TO USE IT

The switching decision will depend on a number of factors, including the individual's own perception of the market and his or her risk profile. The market level is a good trigger. You could choose to tweak your asset allocation with every 10 per cent change. A mix of disciplined asset allocation and deft switching can yield good results for the proactive policyholder.

WHAT IS THE COST?

The switching facility is free. Earlier, there was a limit on the number of free switches in a year, but now most Ulips allow unlimited switching. You can do it by accessing your policy online. Just log on to the insurance company's website and change the investment mix as desired. Alternatively, you can fill up a switch request form and submit it to the insurance company.

VALUE AS TRIGGER

Sophisticated investors can link switching decisions to the PE (price to earnings) ratio of the index. It is derived by dividing the index level by earnings per share (EPS). The Nifty EPS in April-June 2014-15 was Rs. 376. When the Nifty was at 8,040 on 15 September, the PE was 21.38, a little above its long-term average of 18.5. The EPS changes as companies declare their quarterly results.

TAX EFFICIENCY

The best part about switching asset allocation of your best Ulip insurance policy  is that it does not have any tax implication. Since these are insurance products, any long-term or short-term gains from the transaction are tax-free. In amutual fund, only long-term gains from equity funds and equity-oriented balanced funds are tax-free. All other gains are taxable. Short-term gains from equity funds are taxed at 15 per cent.

 [source: http://articles.economictimes.indiatimes.com/2014-09-22/news/54199081_1_asset-allocation-equity-funds-pe]