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Understanding ULIP Returns After 10 Years: What To Expect?

Protecting your family against financial uncertainties may not be not enough. In addition, there are various financial goals you must meet during your lifetime, like the cost of your child’s education, his wedding, and your retirement planning. Therefore, there is a need to look for an insurance plan that gives you the benefit of investment to help you fulfil your long-term financial objectives. 
 

A ULIP* policy is an ideal solution which offers life insurance coverage coupled with investment benefits. However, if you are unaware of how a ULIP plan works and what the ULIP returns are, you may be sceptical about investing in it. Here is a detailed guide to the ULIP returns in 10 years.

What is a ULIP Policy

A Unit Linked Insurance Plan or a ULIP plan combines a life insurance plan and a market-linked investment. It is a long-term investment, and a part of your premium is invested in debt, equity, or balanced funds. Investing in market-linked funds is based on your risk tolerance and comfort. The dual benefits a ULIP plan offers make it one of the most preferred investment options.

What Makes ULIP Plan Returns The Best Option for Wealth Generation in 10 Years

A ULIP policy is loaded with several features that make it a beneficial option for wealth generation over 10 years or more. The main features of a Unit Linked Insurance Plan are:
 

  • Long-term investment: A ULIP plan is a long-term investment instrument. It has a 5-year lock-in period from the day of the policy subscription. The longer duration of the plan allows enough time for returns to grow on your investment. 

  • Risk-based investing: A ULIP plan provides greater control to the policyholder. You can adjust how your money is allocated between debt, equity, and balanced funds, based on your risk tolerance. You can maximise the best ULIP plan returns by using the option of fund switching in the ULIP plan. 

  • Fund Switching: Your risk tolerance and the prevailing market conditions change with time. Therefore, it is advisable to use the fund-switching option to adjust the investment mix based on your risk appetite and the present market conditions as the policy progresses. With Tata AIA Life Insurance ULIP Plans, you get to choose between 11 fund options and unlimited fund switches. 

  • Benefits of investment, savings, and insurance coverage: A ULIP plan offers threefold benefits to the policyholder. An individual gets life insurance coverage along with brisk market-linked returns. In addition, since the policy has a 5-year lock-in period, it promotes the habit of saving. 

  • Options: You can choose between various ULIPs per your insurance and investment needs. Moreover, you can choose a comfortable policy term and premium payment term on a ULIP plan. Our Tata AIA Insurance ULIP plans let you switch between funds to allow maximum growth to your investment. Simply buy our ULIP plan and relax as our team of experts manages your funds on your behalf to multiply your returns. 

Factors Involved in ROI Estimation of a ULIP Plan

The Return On Investment (ROI) on a ULIP plan depends on several factors. The top factors that affect the ROI in a ULIP plan are:
 

  • The investor’s risk appetite: Your risk appetite affects the returns on your ULIP. The higher the risk, the higher the returns. 

  • Fund investment tenure: The returns on a ULIP plan are better for a longer investment period. It is because a long investment tenure counters the volatility of short-term market fluctuations. 

  • Fund portfolio distribution: Since you can include a variety of funds with different returns in a ULIP plan, the fund portfolio distribution affects the returns on the policy. 

  • ULIP charges: The insurance company deducts mandatory charges from your ULIP policy premium. These charges differ for different insurers and generally include mortality charges, policy administration charges, premium allocation charges, switch charges, etc. 

How Much Return Can I Get on a ULIP Policy After 10 Years

  • Market experts estimate a return of 10-12% annually on a ULIP plan with a 10-year tenure. 

  • The returns on a 10-year ULIP policy usually outperform other investment instruments, such as Public Provident Fund and National Savings Certificate. 

  • The returns on a 10-year ULIP policy usually outperform other market-linked investment instruments, such as tax-saving mutual funds. 

  • According to financial experts, ULIP returns with a policy tenure of at least 10 years can overpower inflation.

How to Calculate ULIP Returns

  • Method of Absolute Returns: This is the most preferred method to calculate ULIP returns for a short-term investment. Follow these steps to perform this calculation:

  1. Calculate the Net Asset Value (NAV) and the initial NAV for the ULIP.

  2. Deduct the initial NAV from the current NAV.

  3. Multiply the answer by 100 to get a percentage value.
     

The mathematical formula for absolute return is:

[(Present NAV-Initial NAV)/ Initial NAV] *100

For example: Suppose the starting NAV rate is ₹ 500, and after one year, it rises to ₹ 560. Then, the absolute return rate will be approximately 12%.
 

  • Compound Annual Growth Rate (CAGR): It is the annual increase in a ULIP fund over a given period. The CAGR method calculates policy returns if the returns are spread over more than one year.


    The mathematical formula to calculate CAGR using the initial and current Net Asset Values (NAV) of the scheme is:

[(Current NAV value/Initial NAV value) (1/ number of years)]-1 *100

For example: Suppose the NAV at the time of purchase is ₹ 25, and it rises to ₹ 35 after 5 years. The final percentage value of CAGR is 6.9%.

Conclusion

A ULIP plan offers you the benefit of investment returns along with insurance coverage. The returns on a ULIP plan with a duration of 10 years or more vary depending on your risk appetite, duration of investment, fund portfolio distribution, and the policy charges.

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Tata AIA Life Insurance

A joint venture between Tata Sons Pvt. Ltd. and AIA Group Ltd. (AIA),  Tata AIA Life Insurance  is one of the leading life insurance providers in India. We post everything you need to know about life insurance, tax savings and a variety of lateral topics such as savings and investments in this space. You can access and read a host of different blogs, articles and pages at the Tata AIA Life Insurance Knowledge Center or get in touch with us with any queries or questions!

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Frequently Asked Questions

What are the fund options in a ULIP Plan?

ULIP is a good long-term investment option as it combines the benefits of market-linked returns and insurance coverage. You can choose between equity (high risk), debt (low risk), and balanced funds (medium risk), based on the level of risk you want to take on your money. Higher the risk, higher is the return. You can even switch between funds as your requirements change.

Can I make a partial withdrawal from a ULIP plan?

You cannot make a partial withdrawal during the accumulation phase of a pension or annuity. For other ULIP plans, you can make a partial withdrawal 5th year onwards.

Disclaimers

  • 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 it will be subject to Company’s underwriting and acceptance.

  • For more details on risk factors, terms and conditions please read 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.

Other disclaimers

 

  • Tax: *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 on tax implications mentioned anywhere in this document. Please consult your own tax consultant to know the tax benefits available to you.
     

  • ULIP:

    • IN THIS POLICY, THE INVESTMENT RISK IN 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 POLICY HOLDER 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.

    • All investments made by the Company are subject to market risks. The Company does not guarantee any assured returns. The investment income and price may go down as well as up depending on several factors influencing the market.

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

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