Investment Plans 184 views January 27, 2022

Unit-linked Insurance Plans (ULIPs) offering a unique combination of life insurance and investment benefits have been much in the news for their returns. The returns of many ULIPs that invest your money primarily in stocks and other equity-related instruments have been more than 20% a year. Surely, investors opting for such ULIPs must have enjoyed the one-year bull run of equities. That said, return data can mislead you too if you are not aware of the whole concept. Returns can be in absolute, annualized, rolling, trailing terms bearing different numbers, making you all the more confused. Considering all that, we’ve come up with an article that showcases different types of ULIP returns and their significance. Knowing about the same will allay confusion and help you make a sound investment decision. Let’s keep reading!

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How Do ULIP Returns Impact Your Investment Decisions?

Before moving on to the types of ULIP returns, let’s check how they impact your investment decisions. Suppose one plan yields an annual return of 25% in absolute percentage. But does the same figure sustain taking into account the investment tenure? And how about the returns from the time you started investing till now? Are the returns of ULIPs more than that of their benchmarks? All these are important considerations to make. The return you get must account for the time of purchase to have an idea of how much it turns out in terms of inflation. While double-digit ULIP returns seem impressive, that should be more than the benchmark too. So, the analysis has to be broad-based and not on the number itself.

Let’s Discuss Different ULIP Returns

ULIP returns, as said above, can be in different terms. Let’s know every type starting with absolute returns.

Absolute ULIP Returns

These returns are calculated based on the price difference only. So, if you bought ULIP units for INR 2 lakh and it swelled to INR 3 lakh after 6 years, the absolute return will be 50% (3,00,000-2,00,000/2,00,000) x100). The calculation here does not consider the time of purchase and sale. So, these returns may not align with inflation.

What are Annualized Returns on ULIP Investments?

Annualized Returns can also be called Compounded Annual Growth Rate (CAGR), which is the annual growth of your ULIP investments for a particular period. The calculation takes into account the effect of compounding on your investments. It perhaps shows the true performance of your investments. So, if your annual investments amount to INR 1,20,000 and that swell to INR 7,20,000 after 6 years, the CAGR will be 34.80%.

Rolling Returns & What Do They Show

Returns for specific periods are known as rolling returns, which are calculated based on CAGR. Returns are segregated for a week, month, quarter, six months, a year, two years, three years, five years and so on. Day-wise, these ULIP returns vary and allow you to compare the performance of plans even better.

Do Trailing Returns Indicate the True Performance of ULIPs?

Trailing returns mean the yields generated from one time to the current date, which can be too small or too high. Not the ideal way to sum up ULIPs. So, avoid picking a plan based on such returns.

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