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ULIP NAV - What Is ULIP's Net Asset Value?

ULIP NAV

ULIP NAV - What Is ULIP's Net Asset Value?


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Oct 12, 2018

By : Bajaj Allianz Life

Unit Linked Insurance Plans (ULIPs) is an insurance-cum-investment plan, which can help us meet our financial goals, while also providing insurance cover. These products are goal-oriented investments. You can choose funds based on your risk appetite. The premiums you pay are invested in a variety of funds opted by you after relevant deductions as per applicable charges. This investment plan comes with an additional benefit of Life Cover, where your units are purchased from a chosen fund by you at their Net Asset Value (NAV).

What is a ULIP NAV?

To better understand what an NAV is, we first need to take a look at how Unit Funds work. For ULIPs, money from a number of investors is pooled together to create one large investment sum. This money is then invested in various market instruments. To enable the company to properly divide the returns amongst the investors, the fund manager divides the total investment corpus into small units with a particular face value. The formula used to calculate the NAV is as follows:

NAV = (Value of Current Assets + Market Value of Investments Held) - (Value of Current Liabilities & Provisions) / Total number of outstanding units on date

To better understand the calculation, let's take a look at the following example:

A company, by the name of A Life Insurance is providing ULIPs to two customers, Mr. Y and Mr. Z. Mr. Y decided to pay ` 50,000, while Mr. Z only wants to contribute ` 40,000. After fund management charges are deducted, let's assume Mr. Y's investment amount is ` 49,500, while Mr. Z's investment amount is ` 39,600. This means that the total amount available to invest in various market funds is ` 89,100 This is also known as the net investment value.

Now, let's say the fund manager has created units with a face value of ` 10 per unit. Based on this, Mr. Y will hold 4,950 units, while Mr. Z will hold 3,960 units. The total number of units within the fund will be 8,910.

On the first day, the NAV of the funds will be ` 89,100 (total amount), divided by 8,910 (total number of units), which leaves us with ` 10.

After the investment is made, let's assume there is a profit, which increases the fund's net value to ` 100,000. Now, there will be a ULIP NAV. The new NAV can be calculated by dividing ` 100,000 by 8,910 (as the number of units in the fund remains unchanged). This means the new value of each unit in the find is now ` 11.22, and Mr. Y and Mr. Z have both made a profit of ` 1.22 per unit.

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