Unit Linked Insurance plans have emerged as one of the most promising investment options available in India. Ever since the Insurance Regulatory and Development Authority of India revised the fee structure and cost of these plans, they’ve gained great ULIP traction.
The most prominent thing about a ULIP plan is that they offer combined benefits of insurance and investments in a single policy, which makes it the best of both worlds. Moreover, it also provides better returns than most of the conventional schemes available in the market.
There are a variety of features available in Unit Linked Insurance plans that make them one of the best in the market such as a variety of fund choices, premium redirection facility, customization aspects, and a lot more.
With these features, you can easily ensure the proper growth of your investment and make the most out of your capital. In this article, we’ll discuss several things about the returns and safety benefits offered by ULIP plans.
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What Are the Risks and Returns Available in ULIPs?
ULIPs offer a variety of investment options to suit preferences. Depending on your investment needs, you can choose between options like Large-cap, Mid or Small-cap, Ultra-short bonds, and Secure funds. The return will vary based on the option that you choose.
When you buy a unit-linked insurance plan or ULIP, you are buying several securities at once. The returns on ULIPs are different for each kind of security. Some funds are riskier than others, and the same goes for the potential returns.
The asset allocation engine in the ULIP ensures that any losses incurred in an asset class will be balanced out, and there is no risk of loss even if one or more of the underlying assets suffer a sharp decline in returns.
Furthermore, the best part about ULIPs is that they allow free switches between funds, giving investors the flexibility to switch funds according to market changes.
How to Calculate Returns in ULIP?
The ULIP returns can be classified in two major forms as follows:
CAGR
CAGR is the growth rate of your investment that can be calculated by dividing the end value of your plan (the amount you would get back when you redeem) by the current NAV. The CAGR is a figure that shows you how much your investments have grown or lost. It can help you forecast the future growth of your investment portfolio. To calculate the CAGR of your ULIP, use the following formula:
CAGR = {[(Present NAV/Initial NAV) ^ (1/Number of years)]-1} * 100
Absolute Returns
You can figure out absolute returns with just the current and previous market value. Here’s the formula that you should use to calculate absolute returns:
Absolute returns = {(Current NAV – Initial NAV)/Initial NAV} * 100
Other than these, investors can also use the option of an online calculator which is available with insurance companies. This allows investors to determine the potential value of their investments in the future. One can input some details like premium payment frequency, capital amount, and so on to determine the expected returns of their policy.
Safety Features in ULIP Plans
As you may already know, ULIP plans are a kind of insurance policy that also provides you with life coverage. This means that in the event of your unfortunate death, your chosen nominee will receive a death benefit that allows them to manage their daily expenses in your absence.
Additionally, you can also add various riders to your policy that allow you to extend its coverage even more. There are several unique riders available such as accidental death benefit, critical illness benefit, and many more.
Unit Linked Insurance Plans are also known to be highly liquidated, which makes sure that you can withdraw your funds easily after serving the lock-in period in case you encounter any immediate need for monetary resources.
On top of that, the returns you accumulate through the investments you make in market-linked instruments can also be used for fulfilling life goals or providing for your children’s education. This makes ULIPs a great option for the overall safety of you and your family.
How To Get Better Returns with ULIPs?
Balance your Debt and Equity Exposure
To get the best out of ULIP investments, you should use a debt-equity ratio that is suited to your age and life stage. The general recommendation is to subtract your age from 100 and invest the remainder as equity.
Therefore, a younger age will allow a higher equity investment. And as the age increases, an investor can reduce his/her equity exposure and move the investments towards debt funds, which are relatively safer as compared to equity funds.
Understand The Market
When equity markets are expensive, investors can switch to funds that contain debt securities. Switching back to equity funds when equity markets are providing profits is an important strategy for diversification.
Many ULIP plans offer the option to switch between different types of funds automatically based on certain circumstances.
Take Advantage of the Switching Options
Investors can handle their investments by using a switching option that allows them to program their funds based on their performance. For example, they may decide to switch a percentage of their funds from one fund to another fund at scheduled intervals.
Bottom Line
With a Unit Linked Insurance Plan, you can enjoy combined benefits in a single plan. The policy not only provides you insurance coverage but also allows you to make investments in market-linked funds, which maximizes your financial corpus accumulation.
Moreover, there are various advanced features offered by ULIPs that make them a very convenient investment option in India. You can even switch between multiple funds based on their performance to keep the efficiency of your investments at their peak.
Therefore, if you’re looking to safeguard the future of your family, make sure you invest in a ULIP plan as soon as possible.
