Know about the returns on ULIP investments?

Posted by Ritika Shah on August 1st, 2016

But due to the rising inflation costs, improving lifestyle and growing aspiration it becomes imperative that apart from insurance there has to be some kind of income generation so as to match the pace of the rising living standards. Therefore, insurance companies have introduced market-linked insurance plans with dual benefits known as “ULIPs.”

ULIPs are an investment vehicle that offers the dual benefits of a life cover and investment. The premium paid under ULIP is divided into two parts, where the first part goes towards cost of life cover, and the other is invested in the market for maximizing your savings. An investor has the option to choose from equity, debt or hybrid funds, where their premium will be directed. It is similar to an investment opportunity like MFs (Mutual Funds) where investors purchase units at their NAV (Net Asset Value) from a fund, but with the added benefit of having insurance cover. The ULIP NAV value of a product is calculated by adding the ULIP / mutual fund’s holdings as on a particular day minus the liabilities like management fees, operating expenses, marketing expenses, among other permissible expenses and charges.

ULIP Nav represents the value of the total holdings of the ULIP / mutual funds. It is usually decided by the number of units held by the investors and therefore, represents the net asset value per unit. Your insurance is linked to a Unit Fund. Nowadays, seeing the giant Ads promising you the highest NAV (Net Asset Value) make us believe that we would get the highest possible return with zero risk. But, such is not the case, understand the concept of highest ULIP NAV. Investors perceive a higher NAV as being ‘expensive’ and may not opt invest in the product. On the contrary, they would settle for an investment with a lower NAV because its ‘inexpensive’.

Audiences should know that ULIP NAV is merely the book value of the ULIP/ mutual fund’s investments minus expenses. It should not be considered as inflated or misrepresented. The point is, it represents the fair price of its assets should the mutual funds liquidate all its investments on that day. Investors need not be concerned about the price being too high or low. Therefore, a higher or lower NAV holds no significance and should not be the basis for identifying the right ULIP/mutual fund.

Previously, insurance companies launched products which had major differences from its existing product with different names that created confusion among policyholder; to end this wrong practice IRDAI in its circular also has said that before approving any proposed product it has to be certified that new product is not just a minor modification of existing product. These guidelines become very important in the light of speculations surrounding around highest ULIP NAV guarantee plans as they contribute 20% of total ULIPs sales. Such products give emphasis on debt and in the case of equity sell- off it may trigger further sell- off in equity markets.

Source: http://youknowitbaby.com/article/13798/know_about_the_returns_on_ulip_investments.html