NAV in ULIPs

Net Asset Value (NAV) in ULIPs refers to the market value of the securities the scheme has invested in. ULIPs invest a part of the premiums paid by the policyholders in market-linked¹ assets. NAV shows the market price of each unit you own in the fund. A higher value suggests the fund is performing well, while a lower NAV means it needs to do better. Let’s explore in detail what is Net Asset Value (NAV) in ULIPs.

ULIP plans

ULIP or Unit linked insurance plans are unique financial instruments that offer both life insurance as well as investment benefits. A portion of the premiums you pay is utilised for providing life cover as protection. The remaining part is invested in various market-linked1 securities to generate potential returns. ULIP plans also offer the feature of selecting the investment mix based on your goals and risk appetite.

What is NAV in ULIPs?

NAV of a ULIP is the value of each unit of assets excluding the liabilities. It helps you measure the performance of the fund in which the insurer invested the fund corpus collected from policyholders. However, factors like demand and supply value don't affect the NAV. Rather, the performance of the underlying assets impacts it.

Importance of NAV in ULIPs

NAV of ULIPs is determined on a daily basis. So, investors must track it to stay updated. Here's why it is significant: 
 

• Allows tracking of fund performance 

• Enables risk assessment of a fund's underlying portfolio

• Helps compare different funds for effective cost management

• Enhances decision-making for investors

How is NAV in ULIPs calculated?

Here are the steps to calculate NAV in ULIPs:
 

Step 1: Understand NAV (Net Asset Value)

NAV represents the value of each unit in a ULIP fund. It is calculated daily based on the market value of the fund’s assets.
 

Step 2: Determine the Total Market Value of Assets

Add the current market value of all securities and investments held by the ULIP fund.
 

Step 3: Subtract Liabilities and Expenses

Deduct any liabilities, charges, and expenses associated with managing the fund.
 

Step 4: Calculate Net Assets

Net Assets = (Total Market Value of Assets) – (Liabilities and Expenses).
 

Step 5: Divide by Total Number of Units

NAV = (Net Assets) ÷ (Total Number of Units in the Fund). 
 

Result

The final figure is the NAV per unit, which determines the value of your ULIP investment.

Benefits of NAV in ULIP

The advantages of NAV in ULIP include: 
 

• Transparency in fund value: NAV shows the exact value of each unit, helping you track your investment clearly.

• Daily valuation: NAV is calculated daily, so you always know the current worth of your ULIP units.

• Easy comparison: NAV allows you to compare different ULIP funds and choose the one that suits your goals.

• Helps in switching funds: Knowing NAV makes it easier to decide when to switch between equity and debt funds within your ULIP.

• Better investment decisions: Regular NAV updates help you monitor performance and make informed decisions.

How do you track NAV performance?

Here are the ways to track NAV performance of ULIPs:
 

• Regular monitoring: NAV of mutual funds is declared after market close, so check daily. 

• Evaluate NAV over time: Compare the NAV at different time periods. Rising NAV indicates increasing value of a fund's underlying assets; decreasing NAV may signal underperformance. 

• Benchmark comparison: For in-depth evaluation, compare the fund's NAV performance against relevant benchmarks or peer funds.

• Consider other factors: Consider other metrics such as the fund's expense ratio, historical performance, and market conditions.

Factors affecting ULIPs NAV

The following factors impact ULIPs: 
 

• Market performance: The value of your ULIP fund moves in line with the markets it invests in.  

• Fund-related charges: Costs such as fund management fees, policy administration charges, and mortality charges are deducted from the fund, which can gradually reduce the NAV over time. 

• Economic conditions: Factors like inflation, changes in interest rates, and currency movements can influence how the underlying investments perform and, in turn, affect the NAV. 

• Asset allocation: How your money is split between equity, debt, or other instruments plays a key role in shaping both risk and returns, directly impacting the NAV.

Conclusion

ULIPs provide dual benefits of protection and investment returns. The NAV is a key metric that allows tracking the daily market value of the assets a ULIP invests in. It helps track the market performance of the fund as well as determine its long-term performance. Moreover, regularly monitoring the NAV of ULIPs can also help select the suitable ones, ensuring cost efficiency.