How To Manage Your ULIP Investment and Track Returns?

by Yash
ULIP Investment

Unit Linked Investment Plans, or ULIPs, are very popular investment products in the market. People who wish to make short or long-term investments and create wealth can choose ULIPs. ULIPs offer investors various options to manage the accumulated funds effectively and obtain maximum returns. 

For those who are not aware, ULIP covers both investments and insurance. The premiums paid towards a ULIP plan are invested in market-linked instruments after deducting all applicable charges. Of course, like any other investment, the associated risk has to be borne by the investor, and the risk is higher when the markets are volatile. But there are a few strategies that the policyholders can use to manage their ULIP investments better and maximize their funds’ returns. 

Let us look at a few simple strategies that the policyholders can use. 

Choosing funds smartly 

Going for a ULIP policy is more than just paying the premium and waiting for the maturity to withdraw the funds. It is a relatively active investment. When investing in ULIPs, investors should align their investment choices based on their financial goals. Hence, the selection of the funds becomes very important. The fund options can be categorized as follows:

  • Equity Funds
  • Debt Funds
  • Balanced/Hybrid Funds
  • Liquid Funds

Each of these has a particular level of risk and return. Investments in ULIPs can be maximized by choosing equity funds, as they offer higher returns. However, these come with their fair share of risks as well. If you are an investor who wants to make a safer investment, debt or hybrid funds are a good choice,  though the returns are lower. 

Conservative investors usually put their funds in debt funds to ensure comparatively lower but safer returns. You can also choose hybrid funds, where the money is invested in both equity and debt. Whatever your choice, make sure to know the benefits they provide and beware of the risks. You can use a ULIP calculator to understand your approximate returns for a certain investment. 

Utilize Fund Switching

Investors in ULIPs have the option to switch funds. They can switch from an equity fund to a hybrid or a debt fund and vice versa. Fund-switching needs to be done after analyzing the market risks and prevailing conditions. Before switching funds, it is also important to check your financial liabilities, the present market outlook, and the performance of the funds to date. Most ULIPs allow investors to switch funds without additional charges up to a set number every year. They can choose fund switching to stay away from market-related risks. Investors can also choose the option of automatic switching. By doing so, the funds can be managed by experts on the insurer’s end. 

Avoid Policy Surrender and Partial Withdrawals

All ULIPs have a five-year lock-in period. When the ULIPs are surrendered early, investors might lose the high returns they might receive by investing for a longer period. Also, surrendering the ULIP during the lock-in period will incur discontinuation charges. If you are looking for short-term liquidity, ULIPs can be avoided. On the other hand, if you feel that the funds are not performing as expected, tracking the stock markets closely and changing the investment strategy can help you stay invested for five years and generate good returns. Both options will serve you better than surrendering the policy.

Additionally, after the end of the lock-in period, you might be tempted to make a partial withdrawal from your accumulated funds. Still, it is best if you let the fund grow till maturity so that the amount invested and accumulated is maximized, and so are the returns, consequently. 

How to calculate or track ULIP returns?

To calculate or track the returns, investors need to know how much premium has been paid and for how long. Then, the absolute returns can be calculated by following the steps mentioned below. 

  • First, each unit’s current NAV (Net Asset Value) needs to be subtracted from the initial NAV assigned.
  • Divide the value obtained by the initial NAV
  • Now multiply the obtained value by 100 to obtain the value in percentage

The final percentage value obtained is the absolute return, which shows how the ULIP performed. Also, a ULIP investment involves compounded returns. Hence, one might not always get an exact value for the returns. You can determine the Compounded Annual Growth Rate (CAGR) to get an even better picture of your ULIP’s performance, but that can get very technical. Hence, it always helps to have a word with an expert as they can guide you better.

A ULIP is a great investment option to obtain good returns on the investment. It also protects the policyholder in the form of life insurance. It helps you protect the family and gives you a better option to grow your hard-earned money. However, do make sure that you understand the market risks before investing. 

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