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How To Measure The Fund Performance of Your ULIP?

How to measure the fund performance of your ULIP?

When you aspire to grow your wealth in terms of your future, the preferred option is investing your money. This investment could be either in markets or other financial products which provide substantial returns on your investments over a specified time period. Depending on your requirements, you have different options of financial instruments to choose from.

A ULIP plan is one that offers you the opportunity of investing and growing your wealth. However, many investors are not aware of how they can track the performance of their ULIP portfolio. If you are an investor in a ULIP, read on to understand how you can track the performance of your plan.

What are ULIPs?

ULIPs are a type of life insurance policy which offer the dual benefits of investment and insurance. The premium paid towards the plan is used for both. In investment, you get to invest in equity and debt funds, and balanced funds. Each fund has its risk factor and rate of return. The investment is done based as per your risk appetite and requirement. In the insurance part, your family is provided with a life cover. In the event of your untimely demise during the policy term, the insurer will compensate your family with a death benefit. Once the plan matures, they will also receive the maturity benefits from the plan. 

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How is ULIP fund performance measured?

In a ULIP, the returns that you receive from this plan are called capital gains. The types of capital gains are long-term and short-term. Gains earned during the holding period of more than 12 months are called long-term capital gains, while gains earned during the holding period of less than 12 months are called short-term capital gains. 

There are two ways to track these gains in ULIP meaning different techniques with different results. These methods are:

  1. By calculating absolute returns

Absolute returns are the returns that you get when you calculate the difference between the current NAV and initial NAV of your plan. This type of return is also known as point-to-point return. 

The formula to calculate absolute returns is: [(current NAV-initial NAV)/Initial NAV]x100

In order to calculate absolute returns, you need to follow the steps:

  1. Know what your initial and current net asset value (NAV) is
  2. Subtract the initial NAV from your current NAV
  3. Divide the value that you derive from this subtraction by the initial NAV
  4. Multiply the sum of this division by 100

This method is quite easy given that you know the values of the NAV. However, this method does not give an overall idea about your capital gains. Instead, it is beneficial if you are looking to see the gains on initial investment only.

  1. Compounded Annual Growth Rate (CAGR)

If you want to calculate the annual returns for a specific time period of your plan, Compounded Annual Growth Rate or CAGR is how you calculate those returns. Using this method, the policyholder can calculate the overall annual returns of their plan. 

The formula for calculating the CAGR is: [{(current value of NAV/initial value of NAV) ^ (1/number of years)] – 1}x100

The CAGR is helpful when it comes to getting a mean value about your returns. However, it does not take into account the impact that market volatility has on your investment. As your returns are impacted due to it, it is hard to predict what your actual gains could be.

These are the ways you can track the performance of your ULIP investment. You can get in touch with your insurance advisor to understand more about these measuring techniques. If you are planning to invest in this plan, you can use the ULIP return calculator to see how much your returns would be based on your investments. You can use different variations to get different results which could give you a better idea. 


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