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Ways To Measure ULIP Returns In 10 Years

By Finserv MARKETS - Mar 3,2020
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Ways To Measure ULIP Returns In 10 Years

What are ULIP returns?

A ULIP or a Unit Linked Insurance Plan is a popular financial instrument that offers the dual benefits of insurance and investment. Here, the main goal is to furnish a life cover for the policyholder, along with investments in various funds to create wealth. While a part of your premium is dedicated to insurance, the rest of your money is invested in equity, debt, or combinations of both to generate wealth over the long term.

Features of ULIP plans

Helps meet long term goals: ULIPs are considered as the best instruments of investment when you aim to meet long term goals like planning for your retirement or saving for your child’s education. The IRDAI (Insurance Regulatory and Development Authority of India) has changed the lock-in period of ULIPs from 3 years to 5 years, thus inculcating financial discipline and allowing your funds, time to grow and multiply over time.

Active or Passive Fund Management: Usually, you will be spared of the hassle of tracking your investments as each company has its own fund manager that looks over the investments. However, you can also take up a hands-on approach and be actively involved in how your funds are allocated.

Flexibility to Switch and Redirect Premiums: According to market performance and your risk appetite, you can switch between equity and debt-based portfolios. You can also invest in balanced funds with a combination of both equity and debt. This flexibility is a major factor why ULIPs are popular.

Now that you’ve understood the various features of ULIPs in detail, it’s important that you understand how to calculate your ULIP returns over time.

There are 2 main factors that can influence your ULIP returns in 10 years. They are:

  • ULIP charges: While investing in ULIPs, you are liable to pay certain charges based on the company policy, which may vary from one another. Normally, mortality charges, fund management charges, admin charges, and premium allocation charges are levied on the policyholder. Upon maturity, such charges will be deducted from your fund value before it is disbursed to you. Thus, ULIP charges can affect your returns. The IRDAI has, however, protected the policyholder from obscenely high charges, by putting a cap on the fees that can be levied by insurance providers.
  • Market performances: How the market performs during your investment will majorly dominate your ULIP returns in 10 years. Hence to maximize your ULIP returns, it is recommended that you do a historic performance check to get some indications before taking any investment decisions.

How to assess ULIP returns in 10 years?

We bring you two efficacious methods to compute your ULIP returns in 10 years. You can choose to calculate your ULIP returns by ‘Absolute returns’ if your investment tenor is up to a year. However, if the returns are for more than a year, you can select the CAGR method.

  • Absolute Returns

To calculate absolute returns, you must have the initial and current Net Asset Value (NAV). Net Asset Value is a fund’s asset value minus the value of its liabilities. This value will help you determine if the fund is overvalued or undervalued. In other words, it is the overall cost of a mutual fund that depends on the price per unit fund. Y

You must follow the following steps

  • From your current NAV, subtract your initial NAV
  • Divide the received value from your initial NAV
  • Multiply it with 100 to receive your value in %

The mathematical formula for absolute returns is:

Returns on Ulip in 10 years
This method proves effective while computing ULIP returns for a small period. For example, the Net Asset Value may change over longer periods, consequently changing the absolute returns.

  • CAGR (Compounded Annual Growth Rate)

Your annual growth over a specific period can be computed with the help of CAGR. To calculate your compound annual growth rate, you must follow the correct mathematical formula, which is denoted as:

Returns on Ulip in 10 years
Here, you have to use the beginning and ending value of your scheme, in addition to the invested years. Divide the ending value with beginning value and multiply it 1/nth the number of years you will be investing for. Multiply your value with 100 to get % value.

CAGR computes the mean annual growth rate but it does not consider the volatile market behavior between the invested years and is a completely historical value. Thus, even if your value has been increasing over the last 5 years, you cannot predict the outcome and assume the wealth growth at the same rate for the remaining duration of your investment.

These effective methods can surely help you with computing your ULIP returns. All you have to do is follow the given steps to avoid any complications. However, it must be understood that the value after computation is just an ‘idea’, and not the exact value of your returns.

Conclusion

The ULIPs you opt for can help generate a handy corpus that can, in turn, spur on the goals of you and your loved ones. While you create wealth, the life cover also helps protect this wealth. Thus, it is important that you ensure and select an appropriate plan that supports you and your family.

On Finserv MARKETS, you can choose a plan that provides high returns and an optimum amount of life coverage. You can choose from Child Plans, Retirement Plans, and Investment Pl on Finserv MARKETS. You can also switch your funds according to your risk appetite, investment horizon and changing market movements. With features like multiple portfolio management options and ULIP tax benefits, choose Bajaj Allianz ULIP Plans and start building your future now!

To know more on ULIP investments in depth, you can check out these blogs:

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Bajaj Finserv Direct Limited ("BFDL"), erstwhile Bajaj Financial Holdings Limited is a registered corporate agent of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited under the IRDAI composite registration number CA0551 valid till 10-Apr-2021. BFDL also renders services to Bajaj Finance Limited (‘BFL’) and Bajaj Housing Finance Limited (‘BHFL’) (referred hereinafter as ‘Lending Partner’) in sourcing of customers, providing preliminary credit support activities, fulfilment services and post-acquisition customer services related to lending business. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522