5 min read
When doing financial planning for your future, there are two key aspects that every individual is bound to consider. One, meeting the basic essential financial requirements of the family. These may include kids’ education, career investment, marriage, and any other expenses that you may need to make towards a better future for your loved ones. And two, generating enough wealth to secure not just your future (post retirement) but also that of your family (in your absence post death).
Keeping these two concerns in mind, a person looks for a financial plan that serves these two needs well. And when you find a plan that combines both these in a single package, offering the dual benefit of ‘insuring’ your family’s financial future while ‘investing’ for higher wealth later on, you just got lucky! A ULIP or Unit-Linked Insurance Plan offers you just that.
Here we talk a little more about ULIPs and what absolute returns in ULIPs mean for the common investor. If you’re considering buying one of them, this blog would help you make an informed decision.
Let’s begin by understanding what exactly ULIP policy means and how it works. As stated above, ULIP is the common acronym for Unit Linked Insurance Plans. They come with a unique advantage of offering a combined benefit of investment and insurance to the buyer.
This means that upon buying the plan, the policyholder not only gets life insurance protection but is also given the option of making investments in the capital market, such as in debt funds or equity funds (or even both). With such an advantage, a person’s need for both insurance coverage and wealth creation can be satisfied in a single plan.
This is why ULIPs are generally favored as a financial plan product among a number of investors in India. Besides, there is the added benefit of saving taxes by investing in a ULIP insurance plan. Now let’s move on to understanding what is absolute return in ULIP?
As the name rightly explains, absolute returns imply the total returns or gains made by an investor over a certain time duration. How does one assess that? In financial terms, absolute returns in ULIPs are calculated by determining the difference between the starting value of the investment and its final value, over a specific time period.
Here is the simple formula for calculating absolute return in the context of ULIP investments:
Present NAV (Net Asset Value) – Initial NAV ÷ Initial NAV x 100 = Absolute Returns
Also note that the absolute returns from a ULIP investment are expressed in percentage form. Let us understand this calculation better by way of a small example.
Let’s assume that an investor named Sanjay bought a ULIP plan and invested Rs. 20,000 in it. After 5 years, the investment increased to a total amount of Rs. 30,000. Now to calculate the absolute returns gained from this particular investment, we would follow the formula explained above and arrive at the amount.
Absolute Returns = (30,000 – 20,000 ÷ 20,000) x 100 = 50%
Hence, the absolute returns from this specific investment is calculated to be 50%. In other words, Sanjay’s investment grew by 50% in 5 years.
We learned in the above section on how to determine the absolute return on your investment made in a ULIP plan. If you’re still unsure about choosing ULIPs for financial investment and wealth creation, take a look at some of its benefits below:
ULIPs are by far considered the best financial product in the market, both in terms of investment and financial protection. After all, which other insurance policy would give you the added advantage of linking the plan to the capital market, earn returns, and generate wealth for your future?
It only makes sense then to look for some of the best ULIP plans for investment. When making a choice, keep in mind that the plan you choose must be aligned with your financial goals and that of your family’s for the future. Choose a sufficient life coverage on your plan as well so that you can receive adequate financial protection for a lifetime. Moreover, make sure to keep investing in your ULIP plan for a longer period so that you can generate sufficient wealth to meet all your financial goals adequately.
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