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What Are Absolute Returns in ULIPs?

What Are Absolute Returns in ULIPs?

return in ULIP

Financial providers in Indian carry a number of different responsibilities on their shoulders. However, in general, the top financial concerns for most Indian families center around two major points. The first is that of wealth creation, an effort to expand one’s finances and aspire for a better lifestyle. The second is that of securing a family’s finances, particularly in the unfortunate event of the death of their financial provider.

That is why investment instruments and insurance policies are considered a must for every Indian household. However, a third product aims to combine the benefits of both these features and that is the ULIP, or the United Linked Insurance Plan. In fact, the best ULIP in India do more than just address the two major concerns of Indian families. They also provide additional benefits that make it one of the most popular financial products in India today.

On availing the of your choice, you can essentially enjoy a two-in-one benefit wherein not only can you avail insurance cover but gain returns on market-linked investments as well. They are considered flexible, low-risk investments and typically come with a lock-in period of about 3 to 5 years. It is important to note that ULIPs are investment-based products. Hence ULIP portfolios typically differ from each other based on each individual investor’s risk appetite, duration of investment and financial goals.

Most importantly for a ULIP investor, it is essential to determine the return of investment of his or her particular ULIP. That is where the concept of Absolute Returns factors in.

Absolute Returns and Return of Investment on ULIPs

The first factor to consider when determining the return of investment for your ULIP is the various charges that are deducted for that ULIP scheme. These range from surrender charges, mortality charges, fund management charges to several other administrative charges specific to the insurer company.

The second factor that helps you estimate the return of investment on your ULIP is the market performance. That is why it is essential that you do a thorough round of research to check the past performance of your investment and then find the best ULIP for your needs and risk appetite.

The last and most important factor that determines your return of investment from a ULIP is the way you opt to measure your ULIP returns. While some investors opt for the Compounded Annual Growth rate (CAGR) formula, the more preferred choice for most investors is the Absolute Returns rate.

What are Absolute Returns?

By definition, Absolute Returns refers to the returns from an asset, such as an investment, that is gained over a specific period of time. It is denoted in percentages, and denotes the appreciation or depreciation of the value of that investment. Absolute returns only concerns itself with positive returns and is not aligned with any traditional benchmarks. It stands in contrast to Relative Returns, in which the value of returns, both positive and negative, are considered with respect to a fixed benchmark.

In order to calculate the Absolute Returns for your ULIP investment, all you need is the current NAV (Net Asset Value) and the initial NAV of the ULIP scheme. The calculation of your ULIP returns through the Absolute Returns method requires three simple steps:

  • Subtract initial NAV from current NAV
  • Divide the resulting value by initial NAV
  • Multiply this number by 100 (this provides you with the percentage)

This calculation for Absolute Returns is also expressed by the formula [(Current NAV- Initial NAV)/ Initial NAV] x 100.

Following the Absolute Returns method is an effective way of calculating your ULIP return on investment, particularly in the initial stages. It is also useful for investors who have made a relatively short-term ULIP investment.

Whether short-term or long-term, investment in a reliable ULIP is sure to reap rewards while ensuring the financial security of your family. To that end, it is important to align yourself with only the best ULIP in the country.

Canara HSBC Oriental Bank of Commerce offers a variety of ULIP schemes for a variety of investors. Based on your financial needs and your risk appetite, you can avail ULIP as diverse as the Invest 4G Plan, Titanium Plus Plan, the Smart Future Plan, and the Smart Goals Plan.

In particular, the Invest 4G ULIP from Canara HSBC Oriental Bank of Commerce is a popular ULIP scheme among investors with options ranging from 7 different funds as well as 4 portfolio strategies. You also get to enjoy additional benefits such as wealth boosters and loyalty additions. Moreover, the Invest 4G ULIP also provides you the freedom to take advantage of fluctuations in the financial markets by switching between funds of your choice.

Speak to an insurance specialist now!

FAQs

In order to understand ULIP NAV, you first need to understand how ULIPs work. In ULIPs, a portion of premium from different investors is accumulated to create one investment corpus. This money is invested in several different market instruments. So to divide the returns properly among all the investors, the fund manager divides the net asset value in to small units with a specific face value. NAV is the per market share value of a fund. To better understand the definition of NAV, take a look at the formula below -

Net Asset Value = [Assets-(Liabilities + Expenses)] / Outstanding Units

It's not risky to invest in ULIP if you chose a safer path. Risk factor in ULIPs depends on the investment option you choose. If you are not okay with sharp movements, then choosing a low risk investment is a better idea. For people with high risk appetite, it's good to choose equity funds while risk-averse investors can go for debt funds.

You can opt for settlement option if you want to take your fund value in periodic installments. With the settlement option, you can get your maturity amount in installment as per the frequency chosen by you over a maximum period of 5 years. You can choose complete withdrawal of fund value at any point of time. Although, you will not get any life cover during this period.

ULIPs are life insurance products that provide paths to invest. And just like other investment option, there's no guaranteed investment return in a ULIP. Although, if you like taking risks and want to earn more returns on your investment, then opt for equity funds.

At the time of maturity of ULIP policy, you will get the fund value on your prevailing NAV. Fund value is the number of units of policy multiplied by NAV (net asset value).

Value of the fund = Total units of policy x NAV (Net Asset Value)

Well, discontinuing your premium payment will disrupt your savings as well as financial goals. In such case, you can approach your insurance company and ask for the revival of discontinued policy within the stipulated timelines. Also, you will have to pay all the unpaid premiums.

ULIP plan is a combination of investment and insurance. Thus, one must hold this plan for a duration of at least 10 years so as to get investment benefits out of it. As an early exit will have its own consequences. ULIPs have a lock-in-period of 5 years. Thus, you may surrender your policy before the completion of 5 years, but you will be paid only after the end of 5 years.

Generally, minimum lock-in period for ULIP is 5 consecutive policy years. During this time period, if the policyholder discontinues or surrenders the policy, then he/she will not able to receive any payouts. Withdrawals are only allowed at the end of the lock-in period. In addition to this, if you surrender your policy before the lock-in period ends, then you will have to pay surrender charges as well. Also, it is advisable not to exit your plan after the completion of 5 years of lock-in period, because if you stay invested for a longer duration it will help you reap better benefits.

The amount that you pay towards the Unit Linked Insurance Policy is eligible for tax deduction as per Section 80C of the Income Tax Act, 1961. This means that the premium amount paid will be deducted under section 80C from your taxable income up to a maximum limit, which is currently ₹1.5 Lakhs. However, the aggregate amount of deductions under section 80C, section 80CCC and 80CCD (1) shall not, in any case, exceed ₹1.5 Lakhs. Also, upon the maturity of the policy, the payout amount you receive will be exempt from income tax, subject to the applicable provisions of Section 10(10D) of the Income Tax Act, 1961.

Here’re the following major benefits of buying ULIP

1. Tax Benefits – It helps you to reduce tax liabilities. This means you are liable to enjoy tax benefits on the premiums paid towards the policy as per Section 80C of the Income Tax Act.

2. Long-term growth– One of the major benefits of buying a ULIP plan is that it offers long-term benefits. ULIPs come with a lock-in period of 5 years which will keep you invested for a longer period.

3. Dual benefits – ULIPs not only offer life coverage but also come with a wide range of investment funds that will help you earn great returns. This includes balanced funds, debt funds or equity funds. You can invest in any of them depending on your need and risk appetite.

4. Flexibility – It gives you the flexibility to switch between funds basis your risk appetite. You could select multiple funds and different investment strategies.

5. Partial withdrawal option – It allows you to make partial withdrawal in case of any uncalled medical emergency or contingency after completion of lock-in period.

ULIP is a perfect investment option if you are looking for long term wealth creation. It could be buying your own house, a new car, going on a long vacation, or your child’s higher education or marriage, ULIP helps you to meet all your long-term financial goals. Moreover, it comes with a lock-in period of 5 years which keep you invested for a longer period and helps you earn better returns. The lock-in period is calculated from the date when the policy is issued.

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