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What are Absolute Returns in ULIP Plans?

By Finserv MARKETS - May 16,2019
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What are Absolute Returns in ULIP Plans?

Unit Linked Insurance Plans are one of the most promising long-term investment instruments available in the market today. Along with market-linked returns, ULIP plans also offer the benefit of a life insurance cover. If you are familiar with unit linked insurance plans, you would have definitely come across the term Absolute Returns. While many are aware of the term, only a few understand what it actually means. Here’s everything you need to know about Absolute Returns in ULIPs: –

What are Absolute Returns?

Absolute Returns also known as Total Returns refer to the value gained by assets over a certain period of time. It is generally expressed as a measure to gauge the appreciation or depreciation of the assets. The assets could either be stocks or debt funds. Absolute Returns are not dependent on any benchmark. They can either be positive or negative and may also have no correlation whatsoever to the position or activities of the market. In simple terms, Absolute Return is the profit or loss made by a ULIP portfolio at a given point in time.

Absolute Returns and ULIPs

Absolute Returns are derived by the NAVs (Net Asset Values) of a ULIP plan. They are expressed as a percentage of the initial NAVs and is considered as one of the most effective ways of determining a plan’s performance. Especially, if you have invested for a shorter duration. For instance, the initial NAV of your ULIP policy was Rs. 50 which increased to Rs. 100 over time. In this case, the Absolute Return is 50 per cent. You can use this method to determine your returns during the initial years or at any time during the investment period. Using this method in the initial years is more beneficial. However, bear in mind that this formula only helps you determine your returns based on your capital investment. It will not help you if your investment is compounded.

Types of Returns Generated by ULIPs

ULIP returns are of two types; one is called Absolute Return while the other is called Compounded Annual Growth Rate. Most insurance companies levy certain amount of charges, which are considered while calculating the different types of returns generated. The charges can be anything ranging from, fund management fees & mortality charges, to surrender charges, premium allocation charges, administrative charges, and so on.

Why Invest in ULIPs?

One of the major benefits of investing in a unit linked insurance plan is that it offers life coverage along with the benefits of market-linked investments. Another important benefit of ULIPs are the amazing tax savings. The premiums are eligible for a tax deduction under Section 80C of the income tax act. Moreover, the returns earned are exempted from taxes under Section 10D. Considering all these benefits, the returns you gain are twice as much.

At Finserv MARKETS, we have ULIP plans such as Bajaj Allianz Future Gain and Bajaj Allianz Life Goal Assure that are greatly flexible and let you manage your investments according to your needs, goals and choices. To know more or invest in unit linked insurance plans, visit Finserv MARKETS today!

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

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522