ULIPs are insurance cum investment plans, which help to meet the long-term financial obligations along with providing life insurance coverage. The premium amount paid is allocated towards investments, & the remaining amount is allocated towards life insurance. One can opt to invest in debt, equity, or a combination of both, depending upon the level of risk & financial objectives, making ULIP an ideal investment option. It provides a flexible option to switch between the funds anytime during the policy tenure.
One should compare the costs involved & returns received before investing your funds in any of the financial products. A ULIP Calculator comes into play when the premium amount, along with the return amount, is to be ascertained. It is an online tool that helps calculate the return amount expected out of an investment when left for a specific tenure. A ULIP Calculator also helps in making well-informed decisions by helping to compare different available plans on the basis of their returns.
Factors to be considered while using a ULIP Calculator
Provided are the factors to be considered while using an ULIP Calculator:
- Premium Amount
Choose the premium amount that best suits your budget & financial objectives, & which is to be paid regularly, like every month, year, etc., throughout the policy tenure.
- Policy Tenure
Choose the policy tenure that best suits the long-term financial objectives. The sooner you plan to invest, the more time it gets to grow due to the power of compounding.
- Choice of Funds to be Invested
The funds should be chosen depending on your risk appetite & market situation. If funds are invested in equity, there might be high risk, but high returns too. On the contrary, debt funds come with low risk but stable returns.
- Associated Fees & Charges
Understand the associated fees & charges, such as administrative fees, mortality charges, fund management fees for making comparisons, & the different available plans.
- Expected Returns
The return expected should be estimated on the basis of reality, so that estimated calculations should portray reality & not overestimations.
Formula to Calculate ULIP Returns
There are two formulas available to calculate ULIP returns using a ULIP Calculator. Let us evaluate them:
Absolute Returns
It depicts the percentage increase in the value of ULIP over a period of time. The negative return shows depreciation, & the positive one shows an appreciation in the value of an asset.
Absolute returns = [(Current value – Value at the time of purchase) / Value at the time of purchase] x 100
For instance, the initial NAV = INR 250
Current ULIP NAV = INR 350
Absolute Returns = {(350 – 250) / 250} * 100 = 40%
CAGR ( Compound Annual Growth Rate)
The compounded annual growth rate depicts the annual growth of an investment over a specified period of time.
CAGR = {[(Current value / Value at the time of purchase) ^ (1 / number of years)] – 1} x 100
For instance, the initial NAV = INR 25
Number of Years = 5
Current ULIP NAV = INR 35
Absolute Returns = {[(35 / 25) ^ (1 / 5)] – 1} * 100 = 6.96%
How to Use a ULIP Calculator?
Provided are the steps to use a ULIP Calculator:
Step 1: Provide the basic details, like name, age, date of birth, smoking or drinking habits, etc.
Step 2: Provide the amount to be invested in the ULIP, also known as the premium amount, which should be sufficient to suit your budget. This means you should provide such a premium amount that suits your budget & can be paid easily on a regular basis.
Step 3: Choose the payment frequency of the premium amount depending on your suitability & financial condition. It can be either a one-time, lump-sum, single payment, monthly, quarterly, or annual.
Step 4: Choose the tenure of the plan for which you want to remain invested, depending on your future obligations & financial objectives.
Step 5: Deduct the applicable fees & charges from the premium amount, after which an investor has to decide the proportion of allocation of funds between the insurance & investment.
Step 6: Choose the lock-in period of the plan, which is a period during which the invested funds cannot be withdrawn, that is mostly 5 years in case of ULIPs.
Step 7: Make a selection of funds, i.e. debts, equity or both, depending on the past market performances.
Step 8: Click on the option “Calculate”, & it will show you different ULIP plans depending on the details provided by you, such as annual income, financial objectives, requirements, etc.
Benefits of ULIP Calculator
Provided are the benefits of the ULIP Calculator:
- Quick & Convenient
It is an online tool that provides results quickly on the basis of the details provided, making calculations convenient.
- Financial Planning
It helps you perform financial planning in the long run, because after knowing how much returns would be generated, you can plan your future commitments & obligations.
- Easy to Use
It helps make a choice from the available plans, making it easy to select the most suitable plan recommended by the calculator instead of browsing through many plans.
- No Charges
These calculators are available online free of cost & do not require any fees to be paid.
- Make Informed Decisions
It also helps in making well-informed decisions by helping to compare different available plans on the basis of their returns.
- Investment Tenure
They also help in assessing the investment tenure, as many investors are unable to assess the time period for which funds should remain invested to get the desired returns.
Conclusion
ULIP Return Calculator is a simple & easy-to-understand financial tool that helps us ascertain the premium amount & the expected rate of return. It also helps in choosing a portfolio that will depend on the investor’s acceptance of taking the risk. However, these calculators also work on a presumption & past performance basis, & they may not deliver the results accurately. Hence, it is advised to be more cautious while using calculators before investing in ULIPs.
