One of the biggest advantages of a ULIP is that whatever be the specific financial objective and safety needs of a policyholder, there is always a chance of a ULIP which just right for him. Because of the high degree of customizability, plethora of schemes to choose from, it becomes very important for the investor to narrow down the options for the best ULIP.
This purpose leaves the understanding of the ULIP performance indispensable for an individual trying to purchase one Unit Linked Insurance Plan.
Unlike other fixed return or vanilla insurance plans, ULIPs give the stock market-linked returns to the policy holders thus providing both high returns but at a cost of higher risks. One thing should be kept in the mind that the Unit Linked Insurance never guarantee returns and depending on the performance of Unit Linked Funds, the policyholder achieve gains or losses on his/her investments.
Generally, the performance of various mutual funds is available easily at various online resources. This is not true with ULIP-funds. This difference lies because of the different regulators of the two instruments, Mutual Funds being controlled by the SEBI while IRDA is the ULIP’s regulating body.
Here are few key factors that are important in judging the performance of a Unit Linked Insurance Scheme:
NAV (Net Asset Value)
Higher the growth of net asset value of a unit from its initial value better is the growth and return of that particular fund. The NAV of a unit linked program for insurance varies on a daily basis and can both increase and decrease. A fund with less NAV as compared to the other fund with same face value has performed less than its counterpart.
Past Performance
It is generally noted that the past returns provided by a unit linked program is not indicative of its future returns. But, it gives us enough reason to believe that the prospects of the particular fund are good. These performances are compared to the returns provided by the other competitor funds and also with respect to the returns provided by SENSEX, Fixed Deposits and other assets like Gold.
For example the case of UTI Unit Linked Insurance Plan’s performance is studied below with respect to other investment tools and also with respect to different time periods.
| Investment/Duration | 5 years | 3 years | 6 months |
| UTI ULIP | 10.12 % | 11.11% | 1.32% |
| Competition Average | 10.535 % | 12.135% | 1.46% |
| SENSEX | 11.39 % | 11.39% | -2.94% |
| NIFTY | 12.39% | 11.5% | -0.97% |
| BANK FD | 6.75 % | 6.75% | 4.75% |
| GOLD | 17.94 % | 18.82% | 9.79% |
These analyses are available online, so that investors can judge which plan has performed the best in the past. And depending on the requirement and the decided time duration, which is the best suitable investment.
In the above example, UTI has shown better growth than the stock markets for the shorter period tenure. But stock markets have given more returns on a long terms basis. Moreover, the return given by this particular scheme is almost equal to the competition average making it a favorable option.
Company Background and Portfolio
One should not solely judge the future performance of a Unit Linked Insurance Plan based on its past returns on investment. The other key factors which should be taken care of are the maintenance and other charges levied, company background and brand image of the issuing authority. One should also check the composition of portfolio in a balanced fund (percentage given to equity and that to other less-risky investments).
Questions and comments are welcomes in case of further queries.
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