How To Measure The Fund Performance Of Your ULIP?

The benefits of a Unit Linked Insurance Plan (ULIP) include both life insurance coverage and investment gains. With a unit-linked plan, the insurance provider reserves a portion of the insurance for life insurance and spreads the remaining funds among various securities, such as stocks and bonds. After understanding the meaning of ULIP, you will realise that Unit linked insurance plans are becoming more and more popular because of their flexibility to swap funds, built-in benefits, tax savings, insurance coverage, and lower administration fees than mutual funds.

The ideal option for carrying out long-term insurance and wealth creation goals is a ULIP. ULIPs are market-linked plans, just like mutual funds, and may need to be modified to enhance gains in a volatile market. To secure the greatest gains over the long term, continuous fund monitoring is crucial.

The ULIP calculator is a simple, convenient and easy-to-use tool that you can use to predict the return you might get at maturity by entering a few details.

While insurance and investing are both covered by ULIPs, investors might need help understanding or taking advantage of the investment-related options available to them. This could be expensive since the policyholder is solely responsible for the investment risk. These are some tactics that investors can use to reduce risks and protect their money.

• Choose the right funds: You can minimise risk and optimise gains by matching your funds to your long-term objectives and requirements. To satisfy certain needs and risk tolerances, the choice of funds is essential. In order to maximise long-term financial appreciation, investors can select equity funds. Long-term returns on equity funds may be higher. As an alternative, customers can choose cautious funds that invest heavily in bonds to preserve cash. Also, they have the option of combining a hybrid plan. Investors must speak with their financial advisor before selecting any funds in order to grasp the advantages and disadvantages fully.
• Don’t give up: A five-year lock-in period and the potential for large returns are features of ULIP investments. It is crucial to persevere and not give up on ULIPs for immediate gains. To make adjustments, investors must closely monitor the market. An investor may be able to purchase units at a lower NAV during a market downturn. Once the market starts to recover, the fund’s value will rise, increasing returns.
• Change funds: With a ULIP investment, investors can change funds to suit their shifting risk tolerance and market outlook. Investors can move between debt and equity funds depending on their level of risk tolerance and market knowledge. Investors should consider their own financial obligations, market prospects, and past fund performance before transferring funds. When done correctly, timely fund change can help enhance returns. An investor typically has four free swaps per year.
• Watch for updates: Investors need to pay attention to the fund’s frequent updates. They can modify their plan and allocation of funds in accordance with market activity and forecast. For instance, a forthcoming financial commitment may affect the investor’s risk tolerance and influence their decision to participate in a balanced fund. To maximise their earnings, investors must also keep an eye out for market changes.

How to figure out a ULIP’s returns 

Investors must consider the premium and the length of time the premium is paid when calculating gains from a ULIP investment. Absolute return, often referred to as point-to-point return, is calculated by comparing the starting NAV and the current NAV of the scheme. This is a list of the stages involved in calculating the absolute return.

Add the initial NAV to the current NAV. Minus the value from the starting NAV.

The result obtained in step 2 is multiplied by 100 to produce a percent value.

The absolute return shows the performance of a ULIP over the short term. The absolute return may not accurately represent long-term results because investments are based on compounded returns. The compound annual growth rate (CAGR) shows how much an investment has increased each year over time.

The beginning and ending values of the programme, along with the number of years, can be used by the policyholder to compute the CAGR for a ULIP. CAGR, however, does not take into account return volatility over time. Because of this, it is impossible to use CAGR to predict the growth of an investment in a ULIP in the future in the absence of market volatility and other factors. It is important to understand the meaning of ULIP to invest well.