How Much Wealth Can I Create from ULIP Returns in 10 Years?

It is natural for an individual to look for an insurance policy that also offers investment benefits to fulfill their long-term goals. Unit Linked Insurance Plans (ULIPs) are the best plans that provide life insurance along with the benefit of investment returns.

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For an investor to achieve high ULIP returns in 10 years, various factors like using a ULIP calculator, assessing the current market scenario, and looking at trends for ULIP returns in the last 10 years are beneficial in evaluating the returns for the premiums invested in equities and bonds of the ULIP plan.

Let us learn more about how one can build high wealth from the ULIP returns in 10 years.

What is a ULIP Policy?

ULIP, which stands for "Unit Linked Insurance Plans," is a long-term market-linked investment cum insurance plan consisting of life coverage and a range of investment options distributed across multiple unit-linked assets like shares, bonds, a mix of funds, and so on. This ensures the successful delivery of gains for substantial life goals like retirement planning, child education, asset building, and more.

Features of a ULIP Policy

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

    To reap the maximum benefits out of this insurance-and-investment plan, the ULIP policies are locked in for 5 years from the day of the subscription.

  2. Flexibility of Fund Switching:

    ULIP investments allow the investor flexibility to adjust money allocation across the investment portfolio of debt and equities depending on their risk profile and market conditions. A slew of fund-switching options is available, like the Systematic Transfer Option (STO), Return Protector Option (RTO), Auto Fund Rebalancing (AFR), Safety Switch Option (SSO), and more.

  3. Unit Linked Plan Taxability:

    Under the Income Tax Act of 1961, the maturity amount of the ULIP plan is exempt from taxation. Furthermore, tax benefits are available under Section 80C of the IT Act for premium payments of up to Rs. 1.5 lakhs per year. The act also allows tax exemption for partial withdrawal of a ULIP policy.

  4. Protection with Insurance Coverage: 

    A part of the ULIP premium goes toward life insurance coverage. At the same time, the rest is invested in market-favorable securities.

Factors Involved in Return On Investment (ROI) Estimation

Apart from factors like the risk-taking appetite of the investor, fund investment tenure, and fund portfolio distribution, 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 investment securities will allow for much more accurate monitoring of investment returns.

How Much Wealth Can I Create from ULIP Returns in 10 Years?

  • As per market experts, an investor can gain 10-12% annual returns for an investment of at least 10 years.

  • 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 higher returns in 10 years as compared to other market-linked investment products, including ELSS, tax-saving mutual funds, fixed deposits, and so on.

  • Financial experts anticipate ULIP returns bearing the potential to overpower inflation if invested for a minimum of 10 years.

  • During the ULIP policy's tenure, it will also offer comprehensive insurance coverage for the policyholder's family in the event of their untimely demise.

Calculating ULIP Returns in 10 Years

  1. Method of Absolute Returns

    This is the best method to assess the ULIP return performance for short-term investments. 

    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:

    [(Present NAV-Initial NAV)/ Initial NAV] *100

    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 a policyholder's investment fund over a given period of time. If the ULIP returns are spread across more than a year, then CAGR is used to calculate the returns. For returns within one year, a full refund is considered.

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

    [(Current NAV value/initial NAV value) (1/no. of years invested)]-1100.

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

Making active use of the ULIP portfolio management strategies will help an investor gain maximum returns from their ULIP policy. Some of the strategies are as follows:

  1. Rebalancing Investment Fund Profile:

    Changing your fund profile between equities and bonds as market trends change will help you build a wealth corpus.

  2. Ride the waves with the market: 

    Buy more when the markets are down and switch to debt funds when the markets are high.

  3. Money Compounding Is Effective:

    Investing small amounts of money for a longer period of time helps reduce 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.

  4. Maintain your ULIP Insurance Plan tax-free:

    Keep your annual investments below 10% of your term life insurance to ensure your ULIP investments are tax-free.

  5. 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.

  6. Make the Most of Internet Technology:

    Using digital technology to ease your portfolio management with alerts, charts, reports, analytical tools, and auto-debits.

  7. Prepare for the Worst:

    Always assume your ULIP investment will give you a nominal rate of return so that your monthly premium outflow remains constant and does not fluctuate with market fluctuations.

Wrapping It Up!

With the desire to gain the highest returns and build a considerable wealth corpus, strategic planning and timely actions for market-linked investment plans are a must. Depending on your risk appetite, market research, and Return of Investment (ROI) analysis, the investor can design their ULIP insurance plan strategy for the next 10 years.

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