What-are-absolute-returns-in-ulips

What Are Absolute Returns in ULIPs?

Learn about Absolute Returns in ULIPs, how to calculate them, common mistakes to avoid and tips to choose the best ULIP for your financial goals.

Written by : Knowledge Centre Team

2025-08-02

3428 Views

7 minutes read

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Financial providers in India carry a number of different responsibilities on their shoulders. However, in general, the top financial concerns for most Indian families centre around two major points. The first is wealth creation, an effort to expand one’s finances and aspire for a better lifestyle. The second is 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 to combines the benefits of both: ULIP (Unit Linked Insurance Plan). In fact, the best ULIPs in India do more than just address the two major concerns of Indian families. They also provide additional benefits, making them one of the most popular financial products in India today.

By investing in the ULIP of your choice, you can essentially enjoy a two-in-one benefit, wherein not only do you get insurance but also gain returns from market-linked investments. They are considered flexible, low-risk investments and typically come with a minimum lock-in period of 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 on investment of his or her particular ULIP. That is where the concept of Absolute Returns factors in.

Key Takeaways

  • Understanding Absolute Returns helps you measure how much your ULIP investment has grown over a specific period, independent of benchmarks.
  • Knowing the difference between Absolute Returns and annualised returns like CAGR, helps you compare funds more accurately.
  • Always factor in charges such as fund management fees and surrender charges to calculate realistic ULIP returns.
  • Avoid common mistakes like ignoring tax rules or market volatility when estimating your returns.
  • Choosing a reliable ULIP provider and reviewing your investment regularly can maximise returns and secure your family’s financial future.

Absolute Returns and Return on Investment in ULIPs

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

The second factor that helps you estimate the Return on Investment from your ULIP is market performance. That is why it is essential to conduct thorough 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 Return rate.

What are Absolute Returns?

By definition, Absolute Returns refer to the returns from an asset, such as an investment, earned over a specific period of time. It is expressed as percentage, and shows the appreciation or depreciation of the value of that investment. Absolute Returns concern themselves only with positive returns and are not aligned with any traditional benchmarks. They stand in contrast to Relative Returns, where returns, both positive and negative, are cmeasured against a fixed benchmark.

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 requires three simple steps:

  • Subtract the initial NAV from the current NAV
  • Divide the resulting value by the 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.

Benefits of Understanding Absolute Returns

Understanding Absolute Returns is crucial for any investor looking to make well-informed decisions about their ULIP investments. By knowing how to calculate Absolute Returns, you gain a clear picture of how much your investment has grown over a specific period, without being influenced by market benchmarks or external comparisons. This helps you assess whether your chosen ULIP is performing as expected and aligns with your financial goals.

Knowing your Absolute Returns also makes it easier to compare different ULIP funds. Since each ULIP may have a different fund allocation, risk profile, and investment strategy, Absolute Returns provides a straightforward way to see which fund has delivered better performance over a fixed time frame. This allows you to identify underperforming funds and consider switching options if needed, ensuring your money works harder for you.

By tracking Absolute Returns regularly, investors can make timely adjustments, maximise potential gains and avoid surprises at the end of the policy term. Overall, understanding Absolute Returns empowers you to take charge of your wealth creation journey with greater confidence.

Common Mistakes to Avoid When Calculating Returns

While calculating the returns on your ULIP is straightforward, many investors make avoidable mistakes that can lead to inaccurate estimates and poor decisions. Being aware of these common errors can help you plan better and get a true sense of how your investment is performing.

Here are some mistakes you should watch out for:

  • Ignoring Various Charges: Many investors calculate their returns without factoring in charges such as fund management fees, mortality charges, policy administration fees and surrender charges. These can significantly impact your actual gains.
  • Mixing Up Absolute Returns and Annualised Returns: Absolute Returns measure the total growth over a period, whereas annualised returns (such as CAGR) show the average yearly growth. Confusing the two can lead to an unrealistic view of your investment’s performance.
  • Overlooking Tax Implications: While ULIP returns can be tax-free under certain conditions, some payouts may attract taxes if the premium exceeds specific limits set by tax laws. Always check the latest tax rules to understand the net benefit.
  • Not Considering Market Volatility: Some investors calculate returns during market highs or lows without understanding that short-term fluctuations may not reflect the overall performance of the ULIP fund.

By avoiding these mistakes, you can ensure that your return calculations are accurate and your investment decisions are based on a realistic view of your ULIP performance.

Conclusion

Whether short-term or long-term, investment in a reliable ULIP can help you grow your wealth while ensuring the financial security of your family. To achieve this it is important to choose only the best ULIP plans available in the country and to understand how to measure your returns effectively.

By learning how to calculate Absolute Returns and other performance indicators, you can make informed decisions, compare different funds and maximise your potential gains. Remember to review your ULIP portfolio regularly and avoid common mistakes that may affect your actual returns.

Canara HSBC Life Insurance offers a wide range of ULIP plans designed to suit different risk profiles, investment goals and life stages. Explore your options carefully and choose a plan that aligns with your long-term financial objectives, so you and your loved ones can enjoy a secure and prosperous future.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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