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.
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.