How To Evaluate ULIP Equity Fund Risk?

ULIP Equity Fund

Unit Linked Insurance Plans, or ULIPs, are a common kind of investment. They offer security and excellent returns by combining the advantages of insurance and investing. In a ULIP, a portion of the payment goes towards a life insurance policy, while the remaining money is invested in funds of your choosing.

Depending on your financial objectives and tolerance for risk, you can pick between debt, equity, or balanced funds. Yet, you must comprehend what is ULIP, and how ULIPs operate and produce gains before making an investment in one.

What exactly do ULIP returns mean? 

ULIPs give you a life insurance policy for your family’s financial security while also increasing your income and assisting you in reaching your long-term investment objectives. Your investing decisions, as well as elements like ULIP fees and ulip fund performance, will all have an impact on the returns from your ULIP.

How are returns on ULIPs determined? 

You can assess the returns on your ULIP in one of two ways: 

  • Absolute returns: This represents the growth in the ULIP’s overall value as a percentage. This amount is taken into account after operational costs and management fees have been deducted.

Absolute returns are calculated as [(Current value – Value at Purchase)/Value at Purchase] x 100

For instance, if the value of your ULIP plan was ₹ 250 at the time of purchase and it increases to ₹ 350 after a year, your absolute return would be 40%. This approach is helpful for a short-term plan.

  • CAGR (Compound Annual Growth Rate): The CAGR approach, as its name implies, aids in assessing the annual growth of your investment over a given time frame. It assists you in calculating the rate of return you receive from your plan on an annual basis. 

CAGR is calculated as {[(Current value/Value at the time of purchase) ^ (1/number of years)]-1} x 100

For instance, CAGR would be 6.96% if the value of your ULIP at the time of purchase was  ₹250 and five years later it had increased to  ₹35,000. 

Alternatively, you can figure out your earnings using an online ULIP plans returns calculator. 

The various risks and returns associated with ULIPs:

High-risk funds typically offer higher returns, whereas low-risk funds typically provide stable but lower returns. Hence, the funds you select determine the returns on your ULIP. A thorough understanding of what is ULIP is a must.

How can high returns in ULIPs be guaranteed? 

  • Market outlook: To ascertain the ideal time to invest in equities, debt, and balanced funds, you should monitor the ULIP fund performance in the market. If you believe the equity market to be overvalued and expensive, you should move to debt funds first and invest in equity later when the equity market has reached the appropriate level.

  • Switch funds to gain an advantage: The majority of ULIPs provide you with the freedom to switch between funds without incurring any fees, allowing you to adjust your asset allocation to reflect changes in the market. This can assist you in seizing chances and safeguarding your financial assets.


  • Consistency in the debt-to-equity ratio: If you balance the amount that you invest in equities and debt, your ULIP will generate greater results. You can commit a sizeable portion of your funds to equity at a younger age. Your emphasis on stock funds should lessen as you get older, and your investment in debt funds should rise. 


  • Establish financial objectives: Goal-based investing can assist you in maintaining focus on your goal and making the necessary investments throughout the time to reach it. It’s crucial to continue investing throughout the course of your ULIP to guarantee good gains. With goal-based investing, you’ll be able to invest the proper amount and maintain your investment for the full time without giving in to the temptation to take money out in the middle. 


  • Benefit from the power of compounding: Reinvesting your gains in the market to generate bigger returns is referred to as the power of compounding. You must make long-term investments in your plan in order to reap its rewards. Your money will have more time to grow the longer you keep it invested. 


  • Take advantage of ULIP tax benefits: ULIPs give you tax advantages that enable you to raise the total returns from the plan. Under Section 80C of the Income Tax Act of 1961, you may be eligible for a tax deduction of up to 1.5 lakh, subject to certain requirements, which might result in tax savings of up to 46,800 each year. The sums received under the policy are exempt as long as they meet the requirements outlined in Section 10(10D) of the 1961 Income Tax Act. 


* Currently, there are 2 tax regimes in India – new and old. To get the tax benefit you desire, choose the correct one after consulting an expert. You can opt for a regime change during the next financial year.



Leave a Reply

Your email address will not be published. Required fields are marked *