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  • Learn how to calculate fund value in ULIP

    Published on March 11, 2020

    Financial planning can be an essential part of your life. A successful financial planning system should be the right mix of insurance and investment. While many of you might choose an insurance policy for financial coverage, the rest of you might opt for investment for the growth of your funds. Since you might need two different products to fulfill your investment and insurance needs, you might be skeptical about buying a financial product due to the price factor. Therefore, insurance companies have combined the dual benefits of investment and insurance under a single integrated product called Unit Linked Insurance Plan (ULIP).

    A ULIP plan can be a mix of investment and insurance. While the insurance component can let you safeguard your family, the investment element can allow active participation in the capital market. Under a ULIP policy, the sum assured and fund value can be an integral part. Since it might be easier to learn about the sum assured, you might struggle to understand the meaning of fund value. Therefore, let’s decode what a fund value is in detail:

    What is the fund value?

    A ULIP investment can be a flexible option. Under a ULIP policy, you can have the liberty to choose between ULIP funds based on your risk appetite and investment goals. Typically, a ULIP policy can allow you to select from the two main types of funds mentioned below:

    1. Equity Funds

    Equity funds can be a risky investment option. Since it is linked to the market, the fluctuations of the market can impact the ULIP returns. For instance, if the market is in good condition, you can receive relatively high returns and vice versa. Typically, you should invest in equity funds when you have a high-risk appetite due to lesser financial responsibilities.

    1. Debt Funds

    Debt funds can consist of low-risk due to zero involvement of the market risks. When you grow older, you can opt for debt funds to safeguard your invested capital. Investment in debt funds can garner low returns.

    The total monetary worth of all the units that you hold can be termed as fund value. Calculating the fund value can be easy. As a policyholder, all you have to do is multiply the Net Asset Value (NAV) of every unit on that particular day by the total number of units you own. Typically, the NAV is a unit price of a fund, which can be calculated by deducting the associated liabilities from the fund’s assets. However, the fund value can vary based on the NAV.

    A ULIP policy can provide you with sum assured or fund value, whichever is higher. However, there are three different scenarios under which a ULIP policy can offer a payout. Let’s go through the different cases of payouts, as mentioned below:

    1. Death

    If anything happens to you in the future, your nominees can receive the sum assured amount or the fund value, whichever is more. If your selected fund is not in good condition, your fund value can be low. Hence, your insurer can provide your loved ones with a sum assured value since it can be higher than the fund value.

    1. Surrender

    A ULIP policy might have a lock-in period of five years, during which you might not be able to surrender the policy. However, if you decide to discontinue your ULIP policy during the on-going tenure, your insurer might deduct the applicable charges from your fund value. In addition to this, the surrender amount can be paid only after the completion of the lock-in period. If you surrender a ULIP policy after five years, you can obtain the fund value.

    1. Maturity

    Typically, your ULIP policy can be terminated after the completion of the maturity period. When the ULIP policy matures, you can receive a maturity payout, which can be in the form of fund value.

    In a nutshell, the fund value of the ULIP policy can help you to calculate the ULIP returns. Therefore, you should use a ULIP calculator to ensure the accurate calculation of the fund value and returns. A ULIP calculator is an online tool that can allow you to determine future investment value and returns. Before you buy a ULIP policy, use the ULIP calculator for a better understanding of the two most crucial aspects: fund value and returns.