Understanding Fund Value In ULIP: A Complete Guide

A Unit Linked Insurance Plan (ULIP) is a type of life insurance product that offers market-linked investment options. Some part of the premium paid by an individual gets invested in a chosen fund. These funds can be a combination of equity and debt instruments or solely equity or debt instruments.

With ULIPs, individuals can meet their financial goals in the long term while also having life cover. However, a ULIP’s investment needs to be understood as it is subject to market risks and the coverage provided comes at a charge. A ULIP must be understood in detail before getting invested in one as the charges and performance of the funds decide the returns.

Under a ULIP plan, the insurance provider gives a minimum assured sum to the nominee or beneficiary of the policyholder in the unfortunate event of the policyholder’s death during the policy’s term.

The policyholder’s nominee and other family members can use these funds to meet their day-to-day expenses and get financial security for their future.

The sum assured amount directly depends on the policy premium. Therefore, the higher the premium, the higher the sum assured. Moreover, this amount is not taxable under the Income Tax Act.

The fund value in ULIP stands for the amount that is the current value of the investments. It is based on the number of units held and the prevailing net asset value (NAV).

Example: If the number of units held by an investor is 2,000 and the NAV is ₹25, then the value of the fund equals ₹50,000. However, if NAV increases to ₹28, then the value of the fund will stand at ₹56,000, assuming that the number of units remains the same.

The ULIP fund value calculation is based on a straightforward formula:

Fund value = Number of units held × Current NAV

The NAV in ULIP (net asset value) refers to the per-unit value of a selected fund. It changes with market movements and the performance of the underlying investments. The net asset value keeps fluctuating on account of gains and losses from the underlying investments and the expenses incurred. Additionally, premium allocation, policy charges, switching of funds and withdrawal of money also change the number of units.

The understanding of the fund value is important for the policyholders since it enables them to monitor their benefits and know whether their selected funds are growing or not.

1. Measures investment progress

The fund value demonstrates the amount of the investment at a specific time, so by comparing different values, one can determine the progress of his/her investment. However, the growth of the fund value does not mean that it will continue to grow.

2. Helps with financial planning

Having an estimate of the value of the fund enables the policyholders to ascertain if they are on course to reach their financial goals like funding their children’s education, purchasing real estate, or planning for retirement.

3. Supports fund selection

ULIPs can have options for equity, debt and balanced funds, and each has its own risk factor. By evaluating the fund value in conjunction with the performance and the objectives, the policyholders can make better informed decisions on the most suitable fund option.

4. Helps estimate future benefits

The fund value can provide an indication of the investment component of the policy's maturity benefit. However, the final amount depends on future market performance, charges, and the policy's terms. Death benefits may also be calculated differently depending on the plan.

5. Highlights the effect of charges

Policy charges can reduce the number of units held or the value of the investment. Monitoring the fund value helps the policyholders to track the impact of these charges. 

On investing in a ULIP policy, you will get a certain number of units of the fund you choose based on how much money you invest. The Net Asset Value is the price of every unit in the fund. The NAV value changes every day due to the fluctuations in the price of securities which are a part of the fund’s investment.

The formula to calculate the NAV is:

NAV = (Assets-Liabilities) / Number of outstanding units

In this formula:

Assets = Total value of investments and assets in a fund

Liabilities = Due expenses

You can calculate the fund value of your investment on a particular day by using the NAV on that day.

The formula to calculate the Fund Value is:

Fund Value = NAV (per unit) x Number of units in the fund

For example, if there are 1,000 units in your portfolio and the NAV for each unit today is ₹ 20, the Fund Value for your ULIP plan today is:

1,000 * 20 = ₹ 20,000

A ULIP payout can be made under the following 3 situations:

• Policyholder’s demise during the policy term: In the event of the policyholder’s death during the policy term, the beneficiary or nominee receives the sum assured or the fund value, whichever is higher. Since the fund value of a ULIP plan keeps fluctuating on a daily basis, the sum assured is paid to the beneficiary if the fund is underperforming and the sum assured is higher.
• Upon policy maturity: If the policyholder survives the policy term, the insurance provider pays the fund value at the time of the plan’s maturity to him. The fund value here is the total investment value of the policy.
• Upon surrender of policy: A ULIP plan has a 5-year lock-in period. In case of an emergency, if the policyholder wants to surrender the plan before its maturity, the insurance provider pays the surrender value of the plan, post deduction of the applicable charges.

Understanding the factors affecting ULIP fund value helps policyholders review their investments more effectively. These factors include:

• The present market value of the investment.
• The market value of the policyholder’s current assets.
• The market value of the policyholder’s current liabilities and provisions.
• The number of units in the portfolio on the day the fund value is calculated. 

To secure your future with the dual features of investment and insurance, invest in a ULIP plan by Tata AIA. With a Tata AIA policy, you can choose a ULIP plan that best suits your requirements, such as wealth creation, health benefits, post-retirement benefits, and children’s education.

Our range of ULIPs is designed to help you achieve your financial goals through flexible premium payment terms and policy terms. Enjoy the benefits of market-linked returns coupled with a life cover with our ULIP plans, like Tata AIA Life Insurance Fortune Pro and Tata AIA Life Insurance Wealth Pro.

Regular monitoring does not require constant checking of market prices. Some simple steps can help the policyholders to be on top of their investment and let them review if they are on course with their investment plans.

Check the fund value regularly

• The policyholder can check the website of the insurance company or the mobile application to learn the current value of the fund and the number of units.
• Look at the statements to review how the premiums, withdrawals, and charges affect the investment.
• Comparison of the value of the investment should be done on a regular basis.

Understand the NAV

• Check the latest NAV of each selected fund to understand its current per-unit value.
• Compare the performance of funds with similar investment objectives and risk levels.
• Remember that a higher NAV alone does not mean a fund is performing better than another fund.

Review fund allocation

• Check whether the current allocation between equity and debt funds matches the policyholder's financial goals and comfort with risk.
• Consider permitted fund switches when circumstances change, while checking any applicable conditions or charges.
• Avoid making frequent changes simply because markets rise or fall over a short period.

Keep track of policy charges

• Review your policy statement to understand why charges are deducted during the period of your policy.
• Check if any withdrawals or changes to your policy have had an impact on your investment value.
• Review your policy terms before making any changes to your investment that could affect your benefit.

The aim is to understand how the investment is progressing, rather than reacting to every market movement.

The surrender value refers to the sum of money that a policyholder can claim if they decide to cancel or surrender a unit-linked insurance policy before its maturity date. In the case of ULIPs, the process and amount are slightly different as there are certain procedures related to discontinuing payment of premium within the first five years of buying the policy. Additionally, the amount is transferred to a discontinued fund on a particular basis while also depending on regulatory conditions and terms of the policy.

From the sixth year onward, the policyholder may be able to surrender the plan and receive the amount payable under the terms and conditions of the contract.

Several factors determine how much a policyholder may receive when surrendering a ULIP. The amount may differ from the current fund value because of policy conditions and deductions.

1. Current fund value

The value of the accumulated units is an important starting point. If the selected funds have performed well, the fund value may be higher. Market losses can reduce the amount available.

2. Timing of surrender

The point at which the policy is surrendered will have an impact on the amount payable and when it can be received. Certain discontinuance rules apply during the five-year lock-in period.

3. Applicable charges

Depending on the policy and the timing of surrender, certain discontinuance charges or other permissible deductions may apply to the proceeds. The policy document states what charges apply.

4. Premium payments

The premiums paid influence how many units have been purchased over time. Missed payments or policy discontinuation may affect the policy's status and benefits according to its terms.

5. Market performance

Since ULIPs invest in market-linked funds, their value can change before surrender. A fall in the market shortly before discontinuation may reduce the amount payable.

6. Policy terms and conditions

Different ULIPs may have different provisions for surrender, discontinued policies, and benefit payments. Checking the specific policy wording helps avoid confusion about the amount and timing of payment.

The fund value of a ULIP plan depends upon the market movements. It is the total value of your investments in the ULIP plan. By looking at the fund value, you can understand the performance of your investment and calculate its growth or decline. It is important to review the fund value regularly and understand how charges, withdrawals, and fund selection affect the investment. This can help policyholders make informed decisions and keep their investments aligned with their long-term financial goals.