Life can be unpredictable. All you can do is safeguard yourself and your loved ones financially in case of any unfortunate events. Also, making a sound investment strategy is quite necessary. It secures your financial future and helps you build your wealth over time. But with the kind of investment options available in the market, picking the right ones can be a daunting task.

An investment option that is worth considering is ULIP investments. We are here to help you understand what is ULIP and the returns you should be expecting from the said investment.

The Unit Linked Insurance Plans (ULIPs) are primarily an insurance instrument and are one of the most popular investment options available in the market. The Insurance Regulator and Development Authority of India (IRDAI) manages the policy regulations and fee charges.

Ever since the IRDAI took over the ULIP insurance management, the policy has become more consumer-centric. Despite this, people are reluctant to invest in ULIP as it offers market-linked returns. In fact, when you invest in ULIP, a part of the premiums paid towards the policy is used for life insurance cover. The remaining portion is invested in funds of your choice.

ULIP investments offer the liberty of choosing the type of funds, redirection of premiums, fund switching facility, and more that helps in the growth of your investment. It is important to note that ULIPs are a long-term investment instrument. It offers high returns when you remain invested for a long time.

Category Returns to Expect from ULIP Investments

The standard ULIP plan returns that you can expect on your chosen funds are as follows –

Fund Type Average ULIP Return (in %) Maximum ULIP Return (in %)
Large-cap equity funds 9.57 15.18
Mid- and Small-cap equity funds 16.81 24.43
Conservative funds 7.37 9.21
Short-term bonds 6.6 7.87
Ultra-short bonds 6.59 7.89

Note that these are standard return rates on ULIP investments and are subject to change based on the market performance of the funds.

How to Calculate ULIP Returns

Investors can calculate the annual increase in their investments with the help of the Compound Annual Growth Rate (CAGR). The formula used to calculate the CAGR is –

CAGR = [(Present NAV/Initial NAV) ^ (1/ULIP investment term) – 1] * 100

Investors also have the option to use the ULIP calculator to determine the returns earned on the investment. The tool is available free online on the insurer’s website and helps to calculate the potential value of the ULIPs in the near future. All you need to do is fill in the requested details such as premium payment frequency, capital amount, investment horizon, and annual post-tax returns. Based on these values, you can find your annual ULIP returns in no time.

How to get better ULIP returns?

Here are a few tips that will help you get better returns.

  1. Balance the debt to equity ratio in your ULIPs

To get the best returns on your ULIPs, you need to balance the equity and debt ratio in your investments. Choose the equity to debt ratio depending on your current life stage. Investors can use the thumb rule – wherein you subtract your age from 100 and invest remaining percent in equity. That way, young investors should invest highly in equity and vice versa. As you grow old, you should move your investments towards debt funds.

  • Use the fund switching facility whenever necessary

In case you are not satisfied with the fund performance, you can use the ULIP fund switching facility. With this, you can switch from equity to debt funds and vice versa depending on the market performance. It helps you make changes in the ULIP funds chosen in such a way that you can gain high returns over time.

In The End

ULIPs are goal-based investment instruments that help investors accomplish their future financial goals in time. The policy offers high returns when invested correctly and for a long time. But it is important to understand that since the returns are market-linked, determining the exact return amount is quite impossible.