Everything You Need to Know about Absolute Returns in ULIPs

24-June-2021 |

 ULIP plans are versatile financial tools that can offer multiple benefits. The premium that you pay to purchase a ULIP plan is divided into two parts. The first part is used to secure the sum assured that is payable to your loved ones in case of an unfortunate event. The second part is used to invest in the market and harvest returns. These returns determine the performance of a ULIP which is why it is important to understand what they are how they are calculated.

Read to know more about absolute returns in ULIP insurance and what you can do to increase your profits.

What do you mean by absolute return in ULIP?

In simple words, absolute returns or total returns are the change in the value of an asset over time. Absolute return investment is not affected by any benchmark and can either be positive or negative. When the value of an asset rises over a specific period of time, you earn a profit.

Similarly, when the value of an asset depreciates over a specific period of time, you suffer from a loss. Absolute returns are point to point returns that are measured from the date of purchase to a certain date in the future, like 3-year returns or 5-year returns from a ULIP plan.  

 

How do you calculate absolute returns in ULIP?

Positive absolute returns in a ULIP plan indicate your profits from the date you purchased your plan to the date you measure your returns. Likewise, a negative absolute return in ULIP highlights your loss.

To calculate the returns from a ULIP, you need to know the current Net Asset Value (NAV) of the ULIP plan along with its initial NAV (value at the time of purchase). Once you have these figures, follow the steps given below:  

 

  • Take the initial NAV and subtract it from the current NAV.

  • Now divide this value by the initial NAV and multiple by 100.

  • The result will be the absolute return from your ULIP plan. 

 

Here’ the formula you can use to calculate the absolute return of a ULIP.

Current NAV of the ULIP – Initial NAV of the ULIP/Initial NAV of the ULIP x 100

For example, consider a scenario where you bought a ULIP with an initial NAV of Rs. 70. After a year, its NAV grew to Rs. 120. So, your absolute return would be:

120 – 70/70 x 100 = 72.4%

You can either calculate the absolute return manually or use a ULIP calculator.  

 

What factors influence the absolute returns of a ULIP insurance plan?
 

 

 A number of factors can determine the absolute returns from a ULIP investment. These include the following:

 

  • ULIP plan charges: When you buy a ULIP plan, the insurance company can charge you a number of fees, such as surrender fees, fund management fees, mortality charges, policy administration charges, and more. These charges can take away from the returns earned on your ULIP investment. The profit that you earn from your ULIP investment should be more than the charges incurred on the investment. If not, you will ultimately end up with a loss.

  • Market performance: ULIPs are market-linked products. So, your choice of funds can impact your returns. It may be advised to keep a well-balanced combination of equity and debt funds to enjoy stable yet high returns. Switching between funds to tap on market opportunities can also help you gain better returns. Moreover, it helps to check the past performance of the fund before you invest in it. 

 
How are absolute returns in ULIP different from Compounded Annual Growth Rate (CAGR) returns?

There are two types of returns in a ULIP – absolute returns and CAGR returns. While the absolute return offers a point-to-point return over a specific period of time, CAGR is the year-on-year return from a ULIP. So, while absolute returns will show you your returns earned over 5 years, they will not show you the profit or loss of each year.

CAGR, on the other hand, is the annual growth rate of your ULIP investment and can help you determine the profit or loss of each year. Insurance companies can use either of the two-performance metrics to calculate the performance of a ULIP fund. 

 

How can you ensure high returns from your ULIP plan?

Here are some tips that can help you earn a high return from your ULIP plan:  

 

  • Invest wisely: ULIP plans offer several fund options that you can choose from. In order to earn high returns, you must balance your investment in equity and debt funds. A well-planned asset allocation strategy can help you earn better returns. If you are young and have a high-risk appetite, consider investing more in equity funds as they can offer higher returns at an increased risk.

  • Switch between funds: ULIP plans from Tata AIA life insurance let you switch from one fund to another and make the most of the changing market opportunities. Make sure to take advantage of such features and adjust your asset allocation every now and then to earn higher returns and avoid unnecessary risk.

  • Stay invested for the long term: Investing for the long term lets you benefit from the power of compounding. You can stay invested in a ULIP plan for the long term and earn profits.

  • Do some market research: Having a clear understanding of the market will help you make better decisions. So, make sure to study the market and the past performance of your funds, and stay up to date to tap on lucrative opportunities. 

 
To sum it up

ULIP insurance plans can help you achieve varied goals. They can offer good returns over time and can fit into any budget. These plans are flexible and ideal for most people. Moreover, they offer tax* benefits that can help you save more money. They also protect your loved ones in your absence. So, don’t shy away from investing in these plans.



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Disclaimer
  • Insurance cover is available under the product.

  • The products are underwritten by Tata AIA Life Insurance Company Ltd.

  • The plans are not a guaranteed issuance plan, and they will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read the sales brochure carefully before concluding a sale.

  • This blog is for information and illustrative purposes only and does not purport to any financial or investment services and do not offer or form part of any offer or recommendation. The information is not and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.

  • Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document issued by the insurance company.


  • Every effort is made to ensure that all information contained in this blog is accurate at the date of publication, however, the Tata AIA Life shall not have any liability for any damages of any kind (including but not limited to errors and omissions) whatsoever relating to this material.

  • *Income Tax benefits would be available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. Tata AIA Life Insurance Company Ltd. does not assume responsibility for tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.

  • IN THIS POLICY, THE INVESTMENT RISK IN THE INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

  • THE LINKED INSURANCE PRODUCT DO NOT OFFER ANY LIQUIDITY DURING THE FIRST FIVE YEARS OF THE CONTRACT. THE POLICYHOLDER WILL NOT BE ABLE TO SURRENDER/WITHDRAW THE MONIES INVESTED IN LINKED INSURANCE PRODUCTS COMPLETELY OR PARTIALLY TILL THE END OF THE FIFTH YEAR.

  • Past performance is not indicative of future performance.

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  • Please make your own independent decision after consulting your financial or other professional advisors.