How To Deal With A Continuously Underperforming Ulip

  Author: Naveen Kumar

Unit linked insurance plans (Ulips) are long-term investments which combine tax deductions under Section 80C with opportunities to invest in equities. It is the investments in equities that typically provide high growth in the long term i.e. over 8-10 years or more. But what does an investor do on finding his or her investment in an Ulip, underperform consistently? Here is what am investor needs to do.

Compare Ulip performance with the right benchmark If your Ulip fund is underperforming, you need to find out how equity and debt markets have been faring overall. If there is a universal decline, don’t be perturbed by your fund’s underperformance as things will improve with a market upturn. Of course, you need to check how the Ulip fund has fared compared to its benchmarks. If your fund has fallen less than the benchmark, or your fund has performed better than returns of the benchmark, you need to continue with the fund. However, if your fund has underperformed the benchmark for some time, you should start considering a plan of action with corrective measures.

Ensure minimum investment period Like any dish in the kitchen, investments also need time to cook. Underperformance during a short period of time should not worry you. Volatility is part and parcel of market investments, especially those in equities. You need to give it a minimum period of time to start showing results. Ideally, you should consider corrective measures only after a year or more of underperformance.

Check performance of other Ulip funds You need to find out how the other funds of the same Ulip are faring. If the Ulip has other funds and they are performing well, you can shift your investment to them via Ulip switching facility, typically offered free of cost by the life insurance companies offering Ulips.  

Get the exit timing right If your fund is underperforming over a long period and you find no alternative fund offered by the Ulip, you will need to consider an exit. Here, it is critical for your Ulip investment to have completed the initial lock-in period of five years. It is on completion of this period that you can surrender an Ulip and get the money right away. Else, you can discontinue your Ulip premium and wait for lock-in period to get over, to receive your surrender proceeds.

When it comes to long term and tax saving investments like Ulips, it is not only important to buy with care but their progress needs to be monitored. Of course, this has to be done the right way. Often, this can make a huge difference to the eventual outcome.