# Understand Your ULIP Returns before Investing

If there is a financial product that is selling on a much larger rate, it is ULIPs. A ULIP or Unit-Linked Insurance Policy is a combination of two products that offer life insurance and market-linked investment. With the equity market doing well, ULIPs are in the surge right now. They are the best way to achieve investment and insurance at the same time. Before investing in a ULIP plan, one should always analyse its factors to know what they will be getting in return.

So, how will you know how much money you will be getting in the form of returns? How much amount for how much amount of time should you invest in getting good returns? In this article, we will understand the ULIP returns explicitly that will help in zeroing in on an optimal ULIP plan.

### ULIP Calculator

A ULIP calculator is the easiest way to determine your ULIP returns. The best ULIP policy is the one that will give you desirable returns. You have to enter certain parameters such as the amount to be invested, payment frequency, tenure, and tax returns to know the exact return on investment.

### There are two ways to calculate ULIP returns

• Absolute Returns:

If a policy buyer needs to know the absolute returns or the exact number of returns, he should know the current NAV of the scheme and the initial NAV.

Three steps to calculate Absolute returns:

1. Calculate the difference between initial NAV and Current NAV
2. Divide the difference by Current NAV
3. Finally, multiply by 100 to get the value in percentage

Formula: [(Current NAV – Initial NAV)/Initial NAV] ×100

Drawback: This can be used at any time of the investment, but it is really useful only at the initial phase.

• Compounded Annual Growth Rate (CAGR)

CAGR is the indication of annual growth of an investment over a specific period of time. The formula for this includes the end value, the beginning value of the scheme and the number of years of investment.

Formula: CAGR = {[(Current NAV/ Initial NAV) ^ (1/total number of years)] – 1}* 100

Drawback: CAGR is a mean annual growth rate that does not take into account the volatility in returns over a period of time. CAGR is considered a historical metric, and though it will show consistent growth rate, this may not be the case for future returns.

1. Lock-in Period:

With a lock-in period of 5 years, a ULIP plan will let you inculcate the habit of investing in a disciplined manner. Investing in a single ULIP is better as it is a long-term insurance contract. S

1. Better returns:

ULIPs achieve comparatively higher returns than its counterparts due to its equity advantage. Tax-saving funds have given double-digit returns, but you should always search for a new fund every year.