What Is a 10-Year ULIP Plan?
ULIPs are a type of life insurance plan which combine two important aspects i.e. life insurance and market linked investments. If you choose a 10-year ULIP plan, you get life cover over a policy term of 10 years and a part of your premium is invested in market-linked funds like equity, debt, hybrid , . Over the next 10 years, your market linked investment can grow based on the performance of the funds.
Why Choose a 10-Year ULIP Plan?
Key reasons to choose a 10-year ULIP plan are:
Life Coverage
You get a life insurance cover which ensures that your loved ones are financially protected in case of the life assured’s death during the policy term.
Market-linked Returns
Since investment is done in market-linked funds, a part of your premium is invested in market linked funds such as equity, debt, hybrid funds.
Flexibility
ULIPs offer the flexibility to switch between different market linked fund options (subject to policy terms and conditions) based on market conditions, your risk appetite, life goals. This allows you to align your investments with your changing financial goals and market outlook.
Tax Benefits
It allows you to reduce your tax liability under Section 80C (old tax regime) for premiums paid and Section 10(10D) for maturity benefits.
How Does a 10-Year ULIP Plan Work?
When you pay the policy premium, a portion is allocated to life cover, while the remaining amount is invested in market-linked funds..
The market linked funds you invest in depends on factors like your risk appetite, life goals and market performance. ULIPs also allow you to switch between funds(subject to policy terms and conditions). Let us use an example, let us say you choose a 10-year ULIP to save for your child’s future. You invest in balanced funds and let the money grow steadily. At the end of 10 years, you can get a good return while also securing life cover during the term.
Before investing in ULIPs, it is important to understand the workings of the fund returns under a Unit Linked Insurance Plan (ULIP). When a policyholder invests in a ULIP Plan, he/she expects his/her funds to grow over time. Hence it is important to stay invested for a long term to be able to maximize returns.
What are ULIP Fund Returns?
Unit Linked Insurance Plans (ULIPs) provides for a life insurance cover along with an investment opportunity to investors to achieve their life goals. Since a ULIP Plan provides different types of funds for investment, an investor must opt for only that type which matches his/her risk palette. He/she also needs to ensure the time or duration he/she wants to invest for. A ULIP Policy allows investment in equity funds, and debt funds.
Take a look at the factors mentioned below which influence your Return On Investment (ROI) estimation:
ULIP charges
Before analysing the returns, the investor must be aware of the certain charges imposed by ULIPs. Since these charges depend on the insurance companies, they vary from one insurer to another. Typically, every ULIP plan has charges like policy administration charge, fund management charge, premium allocation charge, and mortality charge.
Market performances
The market performance majorly dominates the returns on ULIPs. Hence, to maximize higher returns from the selected fund options, do a historic performance*, check on them to get an indication before making a decision. After the investor invests in ULIPs, he must know how to further measure these returns with ease. Measuring the ULIP returns means allowing the policyholder to keep a check on his/her fund performance. Therefore, go through these 2 effective ways to measure ULIP returns in 10 years. If returns are up to 1 year then you can look at absolute return. If returns are more than 1 year, then you can look at CAGR.
Absolute Returns
Ideally, the policyholder only requires a current NAV and the initial NAV of the scheme to calculate absolute returns. However, he has to follow the three basic steps of doing so:
Step 1: Deduct the initial NAV from the current NAV
Step 2: Divide the value received from the initial NAV
Step 3: To obtain a percent value, multiply the amount with 100
The mathematical representation of the formula for calculating absolute returns is [(Current NAV- Initial NAV)/ Initial NAV] x 100. This method is considered as an effective way to examine the ULIP performance which is held for a short period. For instance, if the NAV rate at the time of purchase is Rs. 230, it will gradually increase to Rs. 265 after a year. In that case, the absolute returns will be approximately 15%.
Compounded Annual Growth Rate (CAGR)
CAGR indicates the annual growth of the policyholder’s investment for a specific period. To calculate CAGR, the investor has to follow the right mathematical formula for doing so. CAGR is mathematically represented as {[(Current NAV value/ Initial NAV value) ^ (1/ number of years)]-1} *100. This formula typically uses the end value and the beginning value of the scheme along with the number of invested years. For instance, if the rate of NAV at the time of purchase is Rs. 25, it’ll further rise to Rs. 35 after 5 years. You can calculate it as {[(35/25) ^ (1/5)] - 1} x 100= 6.9%. Therefore, the final percent value of CAGR is 6.9%.
Keeping these 2 effective ways of estimating your return over investment in mind, we are sure you’ll learn the technique with ease. Measuring the ULIP returns is no rocket science. All you have to do is follow the right steps and calculation to avoid any complexity and get an idea of your returns. Whether you’re looking for maximum gains or balanced gains, invest in ULIP funds based on your risk appetite to get your life goals done.
How Can I Invest in a ULIP Plan for Optimal Wealth Generation?
To optimize wealth through a ULIP, follow these steps:
Determine Your Financial Objectives and Begin Investing
Start by identifying your financial goals—like retirement, education, child education or buying a home. Investing in a ULIP gives your money more time to grow, benefiting from long-term compounding and market growth.
Choose a Long-Term Investment Horizon
ULIPs work best when you stay invested for a longer time. A longer duration can help ride out market volatility, thereby optimizing your returns.
Invest in a Mix of Funds
ULIPs allow you to invest in market linked funds like equity, debt, hybrid funds. A balanced mix based on your risk profile helps reduce risks and boosts long-term growth potential.
Re-balancing Investment Fund Profile
Market conditions change and so should your investment allocation. Rebalance your ULIP portfolio regularly to maintain your desired mix of funds for optimal performance.
Stay Disciplined
Staying invested and disciplined during market ups and downs helps in wealth creation and reaching long-term financial goals.
Money Compounding Is Effective
The power of compounding grows your investment faster over time. The earlier and longer you invest in a ULIP, the more your money multiplies through reinvested returns.
Use Top-Up Options
Use the ULIP top-up feature to invest additional money when you have surplus funds. This boosts your investment value and increases the overall maturity corpus.
Conclusion
ULIP plans are a smart way to enjoy life insurance benefits along with the potential of wealth creation. By starting early, staying invested for the long term, and choosing the right mix of funds, you can build a strong financial future. Stay consistent and let the power of compounding work for you over time.
FAQs
What is the average return on ULIP?
ULIPs can offer average returns depending on market performance, fund choice and how long you stay invested.
Can I make partial withdrawals from my ULIP investment before 10 years?
Partial withdrawals are allowed after the 5-year lock-in period (subject to policy terms and conditions).
How do market conditions impact ULIP returns in 10 years?
ULIP returns are market-linked. If the market performs well, returns can be high. In volatile or weak markets, returns may be lower.
Is it safe to rely on ULIP returns from the last 10 years for planning?
Past returns* give an idea but don’t guarantee future performance. Use them as a reference, but also consider market changes, fund type, and personal goals while planning.
An ISO 9001:2015 
