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How to Know if your ULIP Fund is Doing Better by Looking at NAV?

dateKnowledge Centre Team dateDecember 07, 2021 views121 Views

ULIP is a type of life insurance which along with life cover, also provides you the opportunity to invest in the market and earn returns. Thus, ULIP is a combination of both insurance and investment.

But just Investing in ULIP is not enough, you have to also see how your investment is performing from time to time.

If you haven't purchased ULIP and are looking to buy, then also investment’s performance tends to be a major factor.

When you are looking to invest in ULIPs and are confused about the options to buy, then you are most likely to look at the performance of various ULIPs before buying.

But how will you do that? One of the most popular ways you can do this is via NAV. To assess the performance of your ULIP, NAV must be tracked. It is what determines how your funds are doing.

Before moving forward, let’s look at what NAV means.

What is NAV?

In ULIPs your money is invested in a fund. This fund is created from a pool of investments. This pool of investments is then broken down into parts or ‘units’.

Net Asset Value, popularly abbreviated as NAV is the value of the total assets held by a fund after reducing the short-term and long-term liabilities from it.

After the fund is created from the pool of investments, the fund manager decides the number of units. This unit is then divided by the total value to arrive at the ‘unit’ NAV.

This is the value with which performances of 2 ULIPs can be compared.

Here is how it works

1) The Fund is created by pooling the money of a number of investors.
2) The number of units is decided by the fund manager.
3) Fund value minus the liabilities is divided by the number of units to arrive at unit NAV
4) These units are allotted to you in proportion to the amount you have invested in the fund.

How is NAV Calculated?

Every fund has a NAV value. Here is how NAV is calculated in ULIPs

Step 1: Ascertain the market value of all the investments held by your fund.

Step 2: Add the total value of all the current assets held. You get the current value of the assets.

Step 3: Subtract the liabilities both short-term and long-term from the current value of assets to arrive at the net value of assets.

Step 4: Divide this by the total number of units outstanding. The answer is the Net Asset Value or NAV.

Here are the steps summarized in a formula:

summarized in a formula

How to Track NAV?

The NAV plays a major role in determining how the assets involved in a fund have performed over the years.

Assets of the company, both liquid and non-liquid are included while calculating the NAV. It helps you give an idea about the total worth of the company which becomes important to consider while you decide which fund to invest in.

Here is how you can track NAV so that you have a better idea of an investment.

Let us understand this with a scenario

a) Akshay decides to invest Rs 1 lakh in ULIP. The total value of the fund is Rs 1 cr.

b) From this, the charges are deducted. All the charges amount to Rs 2000, and the remaining amount i.e., Rs 98,000 will be invested in the fund. This is the net amount invested.

c) The fund manager sets the face value per unit to be Rs 10. This gives you 98,000/10 = 9800 units.

Now if the value of the fund increases the NPV will also increase and vice versa. The higher the NPV gets after buying, the better the performance of your fund.

Continuing with the same example, Suppose the value of your fund increases to Rs 1.1 cr.

Now the NPV becomes 11 (1.1 cr/10 lakh share). Since you have brought at Rs 10, the value of the fund is now increased.

To calculate the value of the investment, you multiply the current nav per unit with the number of


units you own.

In the above case, your market value would be, 11 X 9800 = Rs 1,07,800

Three Factors to Check Before Investing in ULIPs

Though an important one, NAV is not the only factor that you need to check while buying a ULIP. Here are the other factors you should consider.

1. Charges in the Policy

Every ULIP has some costs associated with it. These are referred to as ULIP ‘charges’. These charges are deducted from your premium and prior to calculating your fund’s NAV.

Charges involved in ULIPs are

  • Premium allocation charges
  • Policy Administration charges
  • Fund management charges
  • Switching charges
  • Mortality charges
  • Surrender charges

What and how much charges will be incurred will depend on the plan you choose. For example, policies such as Canara HSBC Life Insurance Company’s Invest 4G only included Fund management and surrender charges, the rest all the charges are waived off.

Also, the mortality charges are returned to you after maturity.

Read about all the charges that your policy incurs before deciding to go ahead.

2. Automatic Rebalancing Strategies

Some ULIPs involve strategies in which your fund is automatically rebalanced according to the allocation that you have set. This ensures that you do not have to get much involved.

Check that this facility is available in your ULIP. In Invest 4G, there is Auto Fund Rebalancing (AFR) which maintains your allocation of funds in a specific ratio, that you decide.

Your funds are rebalanced to your desired ratio every 3 months.

3. Premium Protection

Your policy stays with you till you are alive. If you die during the policy, your family receives the sum assured, and then it ceases. But what if you have planned a goal years from now and want your policy to continue even if you die? This problem is solved by the premium protection feature.

How does this Feature help you?

Under this plan, if you die within the policy, then the remaining premiums are paid by the insurance company and the policy continues as intended. All the benefits will be receivable at maturity. This helps to ensure that your family can achieve their goals.

ULIP investments are perfect for meeting important goals for your family. As ULIPs can ensure that their goals will be looked after even when you can’t be there. Simultaneously, ULIPs give you the advantage of aggressive growth, which you can track with fund NAVs before investing.

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