A Unit-Linked Insurance Plan or ULIP Calculator offers a dual benefit of life insurance and market-linked investment under the same policy. Being a hybrid product, a portion of your premium goes towards providing life cover, and the remaining amount is used to build your wealth corpus by investing in a few funds of your choice.
As a rule of thumb, you should always weigh the cost and returns before investing in any insurance product, and a ULIP plan is no different. To simplify this comparison and determine the return calculation process hassle-free, an online ULIP calculator can come in very handy.
Calculating Returns on ULIPs
The returns on a ULIP are market-linked; hence assessing expected returns can be challenging. However, a ULIP plan calculator can help you get an estimated return.
The returns from your ULIP investment plan depend on the choice of fund (debt, equity or balanced) and factors like ULIP charges and, of course, the market performance. There are typically two ways to measure ULIP returns:
1. Absolute returns
Absolute returns depict the percentage increase in the total value of your ULIP investment. Thus, to know the percentage change, you should be aware of the fund’s current NAV (Net Asset Value) and the NAV at the time of purchase.
Formula:
Absolute Return = [(Final Value – Initial Value)/Initial Value] x 100
2. Compounded Annual Growth Rate (CAGR)
The Compounded Annual Growth Rate (CAGR) method helps assess your ULIP plan’s annual growth during a particular period. As a result, you can determine the returns on your ULIP policy on a year-on-year basis.
Formula:
CAGR = {[(Ending Value/Initial Value) ^ (1/number of years)]-1} x 100
Absolute returns prove helpful if your ULIP policy investment tenure is up to a year. However, if the tenure is for more than one year, it is advisable to choose the CAGR method.
Benefits of a ULIP Calculator
As seen above, calculating returns on ULIPs can be difficult and time-consuming. An online ULIP calculator is an easy-to-use tool that can aid you in determining expected returns. Since ULIP policy is subject to market risks, the ULIP return calculator only allows investors to estimate probable returns. Moreover, you must ensure that the selected ULIP plan is based on your risk profile and goals. Then, in such a case, the ULIP calculator can be resourceful.
- It is a simple-to-use tool available online at no cost.
- It simplifies complicated calculations to help you make the right decisions based on age, financial goals, budget, etc.
- It aids in long-term financial planning as ULIP calculators can compare and analyse the estimated returns of the various ULIP plans in the market.
- ULIP calculator provides flexibility and transparency.
General Practices for Maximising ULIP Returns
ULIP is considered one of the most lucrative investment options for investors to fulfil long-term investment goals. Financial experts believe investing in ULIP for around 10 years can reap average returns ranging from 10-12%.Â
Having said that, returns on ULIPs are market-linked and thus volatile. However, you can follow the below practices to maximise your returns on ULIP.
- Keep an eye on the market volatility and track your fund performance regularly.
- Many ULIPs allow you to switch between funds; you can take advantage of the market conditions and switch between funds to widen your profits. However, always consider the number of switches available and underlying costs, if any.
- Diversify your investment and maintain a proper balance between equity and debt.
- Have a goal-based investment approach to ensure you stay invested for the entire duration of the ULIP plan.
- Enjoy the benefit from the power of compounding that is, returns on your returns. For this, you must have a long-term investment horizon.
- ULIPs offer tax benefits under the Income Tax Act of 1961, subject to certain policy terms and conditions. You can take advantage of the tax benefits to maximise your overall returns.
A ULIP plan from Tata AIA Life Insurance can help you invest in the market and also shield your loved ones with a life cover.
Conclusion
As an investor, you must be aware of the factors that affect your returns on ULIP. You can take advantage of ULIP calculators to determine probable returns instantly and accurately. Moreover, you can use the ULIP calculator repeatedly and get accurate returns estimations over the years.