ULIP NAV - What is NAV in ULIPs?

ULIP NAV - What is NAV in ULIPs?

Unit Linked Insurance Plans (ULIPs) are financial vehicles that combine life insurance and investing in providing protection as well as wealth growth. The profits from this methodical investment can help you reach long-term goals such as buying your first home, funding your child's education, saving for retirement, and more.

A portion of the premiums paid for ULIPs is used to provide life insurance, while the remainder is invested in funds. You may also create your own investment portfolio depending on predicted returns and risk tolerance. When the investment time is through, you will receive a sum known as the fund value as a return. This sum will be determined by the NAV of the units initially invested.

While it's important to understand everything about NAV in detail to be able to make lucrative ULIP investments, let us first look at a few benefits of investing in ULIPS.

Benefits of Investing in ULIPS

1. Flexibility

ULIPs provide a plethora of high, medium, and low-risk investing alternatives through several funds offered under the same plan. You can select a suitable plan based on your risk tolerance.

ULIPs provide you with the option of selecting either the sum assured or the premium according to your needs. They also provide you with the option of boosting your investment portfolio through top-ups to take advantage of investment possibilities that arise as a result of changes in the external environment or your personal income flows.

2. Accountability

Before you purchase a product, you will be informed of the fee structure, the value of an investment, and the predicted rate of return for the whole duration of the policy. It's usually a good idea to comprehend the product into which you're putting your money.

Similarly, the yearly account statement, monthly investment portfolio, and daily NAV reporting will keep you up to date on the health of your portfolio.

3. Availability of Liquidity When Required

In the event of an unanticipated future incident, ULIPs allow you to make a partial withdrawal; after the first five years, you can take cash from your Unit Linked Insurance Plans subject to certain pre-imposed conditions.

4. Consistent and Disciplined Saving

ULIPs enable you to develop a regular saving habit, which helps you create a corpus for future requirements.

5. Tax Advantages

The premiums paid for the coverage are tax-free under Section 80C of the Income Tax Act of 1961 upto an aggregate of Rs. 1.5 lakhs per year

Who Should Buy a ULIP Plan?

Before buying a ULIP, it is recommended to have a certain goal in mind. It is recommended to invest in this plan for a longer duration of time since ULIPs return a larger amount over a longer period of time. So, if you want to buy a ULIP, you should have a long-term aim in mind. Investment in ULIPs is also dependent on your risk tolerance and financial situation. The following are the stages of life where a ULIP might be beneficial.

Individuals Who Have Recently Begun Their Careers

They can begin by selecting a balanced fund for lesser financial risks. As individuals advance in their jobs, they can shift their investments to somewhat riskier stock funds. Because they are young, they may have a high-risk appetite and the potential to invest for a lengthy period of time. As previously said, the longer the funds are invested, the larger the returns.

People Who are Thinking of Retiring

ULIPs can also be used by persons who want a steady stream of income when they retire. They can select an appropriate ULIP to build money that will be accessible once the policy matures. The ULIP can also be changed into an annuity plan based on the policyholder's preferences and needs. As a result, even after retirement, one might get recurring payments.

People Who are Starting a Family

People who are preparing to start a family will benefit from ULIPs. The ULIPs provide financial aid for educational opportunities for youngsters. Anyone can start by investing within 60 to 90 days of their child’s birth so that they can easily accumulate larger sums that may not be possible for them in later stages of life. As a result, the individual can choose an appropriate ULIP for his or her children's further education.

Now that we know about the advantages of investing in ULIPS let's understand what NAV is and how it can help in making the right investments.

What Exactly is NAV?

Net Asset Value (NAV) is the per-unit value of an investment fund's assets less the value of its liabilities. This figure assists you in tracking the success of your investment. Understanding NAV necessitates a fundamental understanding of how ULIPs function.

Several other investors, like you, pay the insurance provider the premium for a ULIP. The insurer then pools the funds from all of these investors to form a single huge investment fund, which is subsequently invested in a range of market instruments. Large and varied investments contribute to high returns.

Based on the premium paid, each investor receives a specified number of units. Net Asset Worth, or NAV, is the value of each unit. Each investor's part of the total invested money is represented by the number of units he or she owns. Profits are then divided based on the number of units sold.

How to Calculate NAV

On a daily basis, the worth of all units is determined, and all expenditures are removed. The total number of units is then divided by the result. Your ULIP NAV is the result of this. The NAV represents the market value of a fund's units. As a result, it aids an investor in keeping track of the fund's performance. By calculating the percentage rise in the ULIP NAV, an investor may compute the real increase in the value of their investment. As a result, NAV provides precise information regarding the performance of your ULIP.

The NAV is calculated using the following formula :

NAV = (Value of Current Investments + Market Value of Investments Held) - (Value of Total Liabilities & Provisions) / Overall number of outstanding units as of the date of calculation. Let's look at an example to assist us to comprehend this formula better.

Assume a corporation offers ULIPs to two of its clients, Siddharth and Kripa. While Siddharth could now invest Rs 50,000, Kripa could only afford Rs 40,000 for her ULIP. The firm deducts related expenses from the two sums supplied by the two consumers, and the resulting investment amount is Rs 49,500 and Rs 39,600, respectively.

The total amount accessible for investment in various market funds with the organisation is now Rs 89,100. Assume the fund manager has issued units having a face value of Rs 10 each. Siddharth will have 4,950 units, while Kripa will have 3,960 units. The fund's total number of units will be 8,910.

The NAV of the funds will be Rs 89,100 (total value) divided by the entire number of units, which in this case is 8,910. We receive a total of ten as a result of the remainder.

Assume there is a profit after the investment, increasing the fund's net worth to Rs 100,000. Now, in order to calculate the new ULIP NAV, divide Rs 100,000 by 8,910 (as the number of units in the fund remains unchanged). This means that each unit in the fund is now worth Rs 11.22, and Siddharth and Kripa would earn by Rs 1.22 per unit.

It is vital to remember that the policyholder can only utilise ULIP NAV to compute basic gains on his or her original investment. Because investments are founded on the compounded returns on investments, this technique may not provide a fair picture of actual investment returns when invested over a lengthy period of time.

Conclusion

You may manage your returns with ULIPs by transferring your money between asset classes such as stocks, debt funds, or a combination of both equity and debt. When the market is down, you may protect your assets by switching to debt funds. When the market improves, you may switch to equities and profit from better returns.

ULIPs reduce investment risks while allowing you to achieve considerable gains in the long run. As a result, while deciding how to fund your life objectives, you should consider integrating ULIPs into your portfolio.

Disclaimer:

Note- IN ULIP POLICIES, THE INVESTMENT RISK IN INVESTMENT PORTFOLIO IS BORNE BY THE POLICYHOLDER

Unit Linked Life Insurance products are different from the traditional products and are subject to market risks.

The premium paid in Unit Linked Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions.

Please know the associated risk and applicable charges from your Insurance Advisor or the intermediary or the policy document issued by the insurance company.

Tax benefits are as per provisions Income Tax Act, 1961, and subject to amendments from time to time.

Suggested Plans

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Frequently Asked Questions (FAQs)

Are there any tax benefits of purchasing insurance?

The premiums paid for the coverage are tax-free upto Rs. 1.5 lakhs per annum under Section 80C of the Income Tax Act of 1961. Also, under Section 10(10D), the amount of sum assured plus any bonus (i.e., the policy proceeds) paid on maturity or surrender of policy or on death of the insured are tax free for the receiver subject to certain conditions.

How is NAV calculated?

NAV = (Value of Current Investments + Market Value of Investments Held) - (Value of Total Liabilities & Provisions) / Overall number of outstanding units as of the date of calculation.

Who should buy a ULIP?

If you want to buy a ULIP, you should ideally have a long-term aim in mind. Investment in ULIPs is also dependent on your risk tolerance and financial situation.