ULIP Returns in 10 Years

What is a ULIP Plan?

ULIP stands for a Unit Linked Insurance Plan. It is a long-term best investment plan that consists of the features of both life insurance and market-linked investment funds. Your premium is invested in your chosen fund schemes with underlying assets like shares, bonds, and hybrid funds. The ULIP returns from your investment will depend on the performance of the fund chosen by you.

Importance of Studying ULIP Returns in 10 Years

You need to study the ULIP returns in 10 years for the following reasons:

• Understand the Long-Term Potential of ULIPs: ULIPs are long-term investment plans. It is important to study their returns over a long period of time to understand their true potential.

• Make Informed Investment Decisions: By studying ULIP returns in 10 years, you can get a better understanding of how ULIPs have performed in different market conditions. This information can help you make informed investment decisions.

• Compare ULIPs with Other Investment Options: ULIPs are just one of many investment options available. By studying ULIP returns in 10 years, you can compare them with the returns of other investment options, such as mutual funds, PPF, and NPS. This can help you choose the best investment option for your needs.

Benefits and Features of a ULIP Plan

The following are the major benefits and features of a ULIP plan:

1. Protection with Insurance Coverage: 

   A part of the ULIP premium goes toward life insurance coverage, and the rest of the amount is invested in market-linked investment assets.

2. Long-term Investments with Lock-in Period: 

   To reap the maximum benefits out of this insurance-and-investment plan, the ULIP policies have a lock-in period of 5 years from the day of the subscription.

3. Choice of funds: 

   ULIPs offer a wide range of funds to choose from, including equity funds, debt funds, and balanced funds. This allows you to invest in funds that are aligned with your risk appetite and financial goals.

4. Flexibility of Fund Switching:

   ULIP investments allow you the flexibility to adjust premium allocation across the investment fund portfolio depending on your risk profile and market conditions. You get multiple fund-switching options, like the Systematic Withdrawal Option (SWO), Systematic Transfer Option (STO), Return Protector Option (RTO), Auto Fund Rebalancing (AFR), Safety Switch Option (SSO), and more.

5. Partial withdrawals: 

   ULIPs allow you to make partial withdrawals from your investment after a lock-in period of 5 years. This can be helpful in case of emergencies or unplanned expenses.

6. Riders: 

   ULIP insurance plans offer a variety of riders that can be added to the plan to provide additional coverage, such as critical illness rider, accidental death benefit rider, and waiver of premium rider.

7. Tax Benefits:

   The maturity amount from the ULIP plans is exempted from taxation under Section 10(10D) of the Income Tax Act of 1961. Furthermore, tax benefits are available under Section 80C of the IT Act for premium payments of up to Rs. 1.5 lakhs per year. 

Factors Involved in Estimation of Return on Investment (ROI) Estimation

Apart from factors like your risk appetite, investment tenure, and fund portfolio, the following measurable factors are involved in the ROI estimation of a ULIP plan:

1. ULIP Charges: 

   ULIP charges are deducted from the premium, which differs as per the insurance company. Some of them are policy administration charges, discontinuation charges, fund management charges, fund switching charges, premium allocation charges, and mortality charges.

2. Market Trends:

   Although not a perfect predictor of future returns, tracking historical market performance for the respective fund schemes will allow for much more accurate monitoring of investment returns.

ULIP Returns in Last 10 Years

• As per historic performance, you can gain 12-20% annual returns for an investment in the ULIP plan.

• A long-term ULIP investment policy of 10 years absorbs the short-term market losses, allowing for big rewards in the long run.

• ULIP returns in 10 years are projected to outperform other major investment options like the Public Provident Fund (PPF) and National Savings Certificate (NSC).

• ULIPs are estimated to yield similar returns in 10 years as compared to other short-term market-linked investment products, including ELSS, tax-saving mutual funds, fixed deposits, and so on.

• ULIP returns bear the potential to outperform the inflation rate if invested for 10 years or more.

• You can always rebalance your fund portfolio by selling some of your high-performing funds and buying more of your low-performing funds in order to maintain your desired asset allocation.

Calculating ULIP Returns in 10 Years

1. Method of Absolute Returns

   This is the best method to assess the ULIP return performance for long-term investment plans. 

   The following are important steps in this computational method:

   • Calculate the Net Asset Value (NAV) and the initial NAV of the plan.

   • Subtract the initial NAV from the present NAV.

   • Multiply the value by 100 to convert it into a percentage.

   The mathematical formula for absolute return is:

   Absolute Returns = [(Present NAV-Initial NAV)/ Initial NAV] *100

   Where:

   • NAV = Net asset value

   • Initial NAV = NAV at the time of purchase

   • Current NAV = NAV at the present time

   For example If the starting NAV rate is Rs. 500, and after one year, it rises to Rs. 560, the absolute return rate will be approximately 12%.

   Similarly, if the starting NAV rate is Rs. 40,000, for a 10-year time period, you gain Rs. 1.11 Crore (for Rs. 48 lakh investment over 10 years), and the absolute return rate will be 15%.

2. Compounded Annual Growth Rate (CAGR): 

   The CAGR is the annual increase in your investment fund over a given period of time. If the ULIP investments are spread across more than a year, then CAGR is used to calculate the returns.

   The formula to calculate CAGR using the initial and current Net Asset Values (NAV) of the scheme is:

   CAGR = [(Current NAV value/initial NAV value) (1/no. of years invested)]-1.

   Where:

   • CAGR = Compound annual growth rate

   • Ending value = Net asset value (NAV) at the end of the investment period

   • Beginning value = NAV at the beginning of the investment period

   • Number of years = Number of years in the investment period

How Can I Invest in a ULIP Plan for Maximum Wealth Generation?

Making active use of the ULIP portfolio management strategies will help you gain maximum returns from your ULIP plan. Some of the tips are as follows:

1. Determine Your Financial Objectives and Begin Investing Early:

   Determining your financial goals, creating a suitable fund portfolio, and starting to invest early will help you gain better returns with small periodic investments in the long run.

2. Choose a Long-Term Investment Horizon

   ULIPs are best suited for long-term investment goals, such as retirement plan or your child's education. This is because the longer you invest, the more time your money has to grow and Compound.

3. Invest in a Mix of Equity and Debt Funds

   Equity funds offer the potential for higher returns, but they also come with higher risk. Debt funds offer lower returns, but they are also less risky. By investing in a mix of equity and debt funds, you can reduce your overall risk and maximise your returns.

4. Rebalancing Investment Fund Profile:

   Change your fund profile between equities and bonds as the market trends change. This will help you to gain more and build a huge corpus.

5. Stay Disciplined

   Do not withdraw money from your ULIP investment prematurely, even if the market is performing poorly. Disciplined investing is essential for wealth creation over the long term.

6. Money Compounding Is Effective:

   Invest small amounts of money for a longer period of time. This helps in lowering the risk with lower investment values. For Example, If you want a return of at least Rs. 1 crore after 20 years, then a 10-year investment with an expected rate of return of 8% will yield Rs. 1.19 crores at maturity.

7. Utilise Top-Up Options

   Most ULIP plans offer top-up options, which allow you to invest additional money in your policy after the initial investment period. You can use top-up options to invest more money in your policy when the market is performing well.

Wrapping It Up!

Analysing ULIP returns in the last 10 years demonstrates the potential for both growth and financial stability. However, the performance of ULIPs is subject to market conditions and the choice of funds. This makes it essential for you to conduct thorough research and consider your financial goals and risk tolerance before investing in these insurance-linked investment plans.