What is ULIP?
Unit-linked insurance plans (or ULIP) is a type of life insurance policy available in the market today as they provide their policyholders with dual benefits. These include providing them with an insurance plan in addition to serving as an investment product. ULIPs facilitate wealth creation by allowing the policyholder to invest in their choice of funds. Policyholders can choose from equity funds, debt funds or both these options. These investments are focused on accruing returns over a period of time along with fulfilling long-term plans of insurance.
How ULIP works
Unit-linked insurance policies are designed keeping in mind the policyholder’s potential desire to switch funds and are therefore flexible in nature. Policyholders play the role of investor and can adjust where their money is invested keeping in mind the nature of the market and with a focus on maximizing their returns.
How to minimize risks and safeguard your money with ULIPs
Money invested in a ULIP must be safeguarded against potential risks that are part and parcel of investing in the stock markets. The ways in which this can be done are as follows –
• Select funds based on individual financial goals
Policyholders are encouraged to select funds that most align with their long-term goals in a bid to reduce market risks and maximize their returns. Equity funds for instance may be chosen by those looking to maximize long-term capital growth. Conversely, conservative funds may appeal to those looking to maximize capital preservation as they are funnelled towards bonds. Financial advisors can best highlight what would serve them best.
• Money may be switched from one fund to another
These transfers are based on individual risk tolerance and interpretation of the market. These factors govern whether a policyholder chooses to invest in debt and / or equity funds. Prior to transferring money, policyholders are encouraged to consider the fund’s performance thus far, their financial goals, and the market outlook. Fund switch is also subject to product terms and conditions.
How to calculate returns from your ULIP
In order to arrive at an understanding of what the returns from a given ULIP might be, investors must look at their premium and the time frame or term during which this is meant to be paid. Absolute Return or point-to-point return may be understood by comparisons drawn between the initial NAV and the current NAV provided by the scheme.
Absolute return can therefore be achieved by subtracting the initial NAV from the current NAV.
This is followed by dividing the arrived at value by the initial NAV. This number must then be multiplied by 100 to arrive at a percentage figure.
The relevance of the absolute return lies in the fact that indicates the short-term capabilities of a ULIP. It is important to note that this absolute return is only indicative of a small element of the ULIP which is made up of compounded returns.
Compounded annual growth rate (or CAGR) is the tool used to check the annual growth of an investment over a significant chunk of time. This tool, however, does not take into account market volatility along with other facts.
Conclusion
ULIP policies come built with fund switching possibilities, inbuilt benefits, allow for tax savings, provide coverage in the form of insurance, and could have lower fees associated with management depending on the terms and conditions of the product. As a result, it is no wonder one of the preferred options today.
BJAZ-WEB-IC-01102/21
An ISO 9001:2015 
