Protecting your family’s financial future and investing to ensure that your life goals are achievable are two of the key aspects that you will no doubt want to include in your financial plan. In other words, insurance and investments are both essential to securing your future and the future of your loved ones.
Interestingly, there are financial instruments that offer you the benefits of insurance and investment rolled into one lucrative package. Unit Linked Insurance Plans, or ULIP insurance plans, are just what we are talking about. So, are you wondering - What is ULIP? Well, in that case, let us get to what these plans are and delve a little deeper into what ULIP plans returns are all about.
What is a ULIP?
A Unit Linked Insurance Plan (ULIP) is an option that offers the policyholder the dual benefit of investing in either equity funds or debt funds (or both), while also providing life insurance coverage. It is one of the preferred tax-saving investment options for investors in India. A ULIP insurance plan gives you the benefit of market linked capital appreciation combined with a protective life cover. Therefore, in other words, a ULIP offers the advantage of market-linked investments. You can choose which ULIP funds you wish to invest in based on your risk appetite and life goals you want to achieve.
To understand what ULIP plans returns are about, you need to first get to know what absolute returns are. Let us get to know this concept better.
What does absolute return mean?
Absolute returns are the gains or the returns that an investment has provided to the investor over any specified period. It is the difference between the initial value of the investment, and the final value of that investment, over a particular time. The absolute returns from an investment can be expressed as a percentage.
Let us look at an example to understand this better –
Say that you have invested Rs. 10,000 in an instrument today. Five years later, assume that the investment grows to Rs. 16,000. In this case, the investment has grown by Rs. 6,000. So, the absolute returns from the investment is calculated as follows –
Absolute returns = (Rs. 6,000 ÷ Rs. 10,000) x 100 = 60%
Now, in the example given above, if we were to say that the investment grew to Rs. 16,000 in three years instead of five, the absolute returns would still be 60%. Therefore, the period is of little significance when you are calculating the absolute returns. Effectively, what matters is how much your investment has grown.