What are Absolute Returns in ULIP Plans?

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Unit linked insurance plan – ULIP plan is one of the preferable choices for people. ULIP policies are a hybrid of insurance and investing. A tiny percentage of the invested money is used to secure your life, while the remainder is invested in the market. Premiums can be paid monthly or yearly by policyholders. There are several best ULIPs in India you can opt for. However, you need to consider the absolute return in ULIP while choosing a particular plan.

Here is a complete guide on what absolute returns are in ULIP policies. Read the article further for better comprehensive information.

What are Absolute Returns in ULIP?

A long-term investment in ULIP policies will yield a return. Over time, the rise in the value of a ULIP investment’s assets is referred to as its absolute returns. There might be a negative value, which signifies asset depreciation, or a positive value, which indicates asset appreciation. If you want to compute a  ULIP return over the investment, all you need are its starting NAV and current NAV.

How to Calculate the Best ULIP Returns?

The procedure to calculate the best ULIP returns is relatively easy. Your absolute return will be either positive or negative. In each case, the earnings are reported differently. A ULIP plan with positive absolute returns reflects earnings from the time of purchase to the time the plan is measured. On the other hand, a ULIP with a negative absolute return emphasises your loss. Net Asset Value (NAV) and initial Net Asset Value (NAV) are needed to calculate ULIP returns.

Follow the below-mentioned procedure to calculate the ULIP returns.

  1. To calculate the current NAV, subtract the starting NAV from the current NAV.
  2. Divide this figure by 100 and multiply it by the beginning NAV.
  3. The outcome will be the absolute return on your ULIP plan.

How do Market Fluctuations Affect the ULIP Return from Time to Time?

When you invest in a ULIP plan – you are either investing in mutual funds or the stock market. Hence stock market fluctuations will have an impact on the long-term ULIP returns. The funds in your ULIP portfolio will be affected by the stock market’s performance. To achieve consistent and high returns, it may be wise to invest in a mix of stocks and debt funds. Capitalising on market opportunities may also increase profits if you switch between funds.

If you want to invest in a Tata AIA Life Insurance plan or another policy, you should also investigate its past performance. Know about the features in ULIP and then invest accordingly since your returns will be influenced by the stock performance in future.

What are the ULIP Policy Charges?

When you buy a particular ULIP policy, you must pay a specific ULIP return cost. This includes management fees, surrender charges, mortality fees, and policy administration fees. It is possible that these fees will lower the amount you get from your ULIP investment. For ULIP investments to be profitable, their earnings should exceed their costs. Hence, when you buy the ULIP policy, calculate the ULIP returns and relevant costs. In the absence of this, you will lose money.

Conclusion

There are certain things you must know and consider for high absolute returns on ULIP policy. You must calculate ULIP returns and costs while selecting the ULIP policy. Check the history of funds along with their performance. Invest in the stock market or mutual funds by considering their ten years of performance. This will minimise the probability of risk to an extent.

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