Rising Markets And ULIPs: Should You Hold Or Move?
02 September 2025
5 Mins Read
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Just the moment the stock market starts to buzz and the interest rate keeps rising, the investors start to wonder:
Whether they should stick to their existing ULIP or they can switch to chase better returns?
This question becomes more relevant when the market growth becomes unstoppable. And yet the volatility starts to lurk just around the corner. The decision is all yours.
Remember that your decision to hold or maybe to move can have a major influence on the short-term gains. Not only that, it can also make a deeper impact on your long-term wealth creation journey.
Now, if you are a new investor, what is ULIP? Well, do not worry! In this blog, I will help you understand what is ULIP and how it works. Let’s dive in!
What Is ULIP? Understanding The Concept
A ULIP plan (Unit Linked Insurance Plan) is more like a unique financial product that combines two of the most essential elements:
- Life insurance coverage
- Investment opportunities
A part of your premium will provide you with the ultimate life cover. On the other hand, you can invest the remaining amount in the fund of your choice. It can be an equity, a debt, or a balanced mix.
The ULIPs are not like the short-term investment plans. They are designed with a minimum lock-in period of 5 years. This can encourage both discipline and the long-term investing.
This structure makes ULIPs particularly suitable for goals such as
- Retirement,
- Children’s education, or
- Wealth accumulation over time.
The added advantage is flexibility. Yes! You can switch funds based on your risk appetite and market conditions.
Rising Markets And Their Impact
India’s markets are experiencing growth. Two major things support it:
- Strong economic fundamentals and
- A vision to become a developed nation by 2047.
Equity-heavy ULIP funds have been delivering impressive returns in such an environment. They have served with some top-performing ULIPs, which have shown a 30–35% CAGR over the past five years.
But there is another side to this story. The stock market has historically seen corrections, with at least 19 drops of 10% or more in the past 16 years. Similarly, rising interest rates can dampen the performance of debt funds, since bond prices usually fall when rates rise.
So the dilemma remains: switch to ride the equity wave, or stay invested where you are?
Switching Vs Staying Invested
Switching: Investors tempted by high-performing equity funds may want to switch from debt or balanced funds. A timely switch can unlock higher growth potential, especially in a bullish market. Many insurers allow a few free switches each year, giving you the flexibility to move without extra cost.
Staying Invested: On the other hand, there is wisdom in staying put. If your fund has been performing consistently and aligns with your goals, frequent switching may not be necessary. Timing the market is tricky, and one wrong move could mean missing out on long-term compounding.
Key Factors To Consider
Now that you have understood what is ULIP, it is time to learn about the key factors that you must consider.
Firstly, the investment goals are a must! Let’s say you have planned to start saving for retirement or children’s education.
In that case, stability and compounding matter to you more than chasing short-term peaks. For such goals, staying invested in your current ULIP plan may be the right move.
Second comes the risk tolerance! A risk-averse investor may prefer debt or balanced funds. In contrast, someone comfortable with volatility may lean towards equity-heavy funds.
After that, you have to consider the fund’s performance. If your fund has consistently underperformed compared to peers, switching might make sense.
Lastly, you must consider the market outlook. The Rising markets present opportunities. However, you must not forget that cycles of correction are inevitable. Align your fund choice with how you expect markets to behave in the medium to long term.
The Tax Advantage: A Simple Example
One of the biggest advantages of a ULIP plan is that it is tax-efficient. The premiums you pay are eligible for deductions under Section 80C (under the old tax regime) and, subject to conditions, proceeds on maturity can also be tax-free.
Let’s understand this better with a story. Let’s imagine Rohit, a 35-year-old professional, who regularly invests ₹1,50,000 every year in a ULIP.
If Rohit did this for 10 years, he would be making an investment of ₹15 lakh. Under Section 80C, his taxable income would be reduced by the same amount.
Hence, he would save nearly ₹45,000 a year in taxes (assuming 30% tax slab). Over the course of 10 years, he would have saved ₹4.5 lakh simply by using a ULIP.
Now, let’s envision that Rohit only invested in short-term investment plans such as fixed deposits. Yes, fixed deposits earn you returns, but all the interest earned would be fully taxable. Rohit would not be able to use tax efficiency in this case, subsequently reducing his total wealth creation.
This simple example shows that ULIPs are capable of acting in two distinct but complementary ways: one as an investment product and two as a means of reducing your tax liability.
Impact Of Different Fund Types
Equity Funds – High growth potential but volatile. Staying invested here can work well if you believe the market rally will sustain.
Debt Funds – Lower risk but affected by rising interest rates. In today’s scenario, these may underperform compared to equities.
Balanced Funds – Offer diversification. They may suit investors who want a safer middle ground while still enjoying some equity exposure.
Should You Hold Or Move?
The answer to this question ultimately depends on your particular circumstances. If, for instance, your ULIP is suitable for your long-term investment outlook and the fund has performed adequately so far, staying invested in the market may be a better choice than switching to an alternative fund and taking the risk of underperforming.
If, on the other hand, you feel your fund is significantly underperforming relative to other funds, or if your investment risk profile has changed, then switching to a different fund may be a wise choice.
Whatever you do, just remember that chasing short-term performance rarely rewards long-term wealth.
You should always bear in mind how much ULIPs reward “patience and consistency” since ULIPs are stronger than all but the best short-term investment plans.
Markets will rise, and then they fall again. Interest rates will fluctuate again. Investor sentiment and emotion will continue to fluctuate between fear and greed.
The most important thing is to ensure that your investments are aligned with your actual investment objectives, and that when you invest, you do so with discipline.
You can switch fund options within your ULIP if you wish, yet do not let short-term noise distract you from long-term returns.
Aviva India provides consumer-centric and innovative ULIPs. This means you will have the option of flexibility, insurance protection, and long-term wealth creation.
The most important thing, whether you decide to stay or switch, is to invest in a thought-based decision-making framework, based on your investment objectives, and the rest will be left to time and compounding.
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