ULIP Returns Comparison during Different Intervals of Time

by Viney Kumar Freelance Writer & blogger

As far as returns are concerned, it must be recognized that ULIPs do not always guarantee investment returns. Also, since most potential policyholders tend to scroll through the performance in the previous years, the performance of the ULIP need not necessarily reflect its previous feat.

It is important to understand that while investing in ULIPs it is always recommended to stretch scope of the asset allocation. In other words, expanding the portfolio ensures that the returns eventually get evened out in the best possible manner. Simply speaking, it ensures much lesser risks than otherwise.

In order to strike a mean between the losses and the profits made, it is essential to consider the basic aspects of ULIP returns:

· It is extremely important to strike a balance between the debt and the equity ratio. In other words, if the policyholder is thirty years old, he or she should invest seventy per cent in equities and the remaining thirty per cent in debt.

· Also, in order to better use the ULIPs, it is always recommended to switch from riskier equity funds to the more moderate debt funds as one grows older.

· Additionally, in case one is not able to actively control the switching of the funds, ULIPs have a programmed switching option available.

· By the help of the switching option, the concerned policyholder can easily switch a fixed amount on a monthly basis on a particular date.

· Generally speaking, there are many fund houses which offer automatic switching options in order for the policyholder to switch between funds according to the underlying economic scenario.

· In other words, the volatility of the unit linked insurance plans must be comprehended keeping in mind the overall economic picture.

A Comparative Study of ULIP Returns

Generally speaking, ULIP performances tend to vary across the portfolio. Also, it is important to note that returns mentioned below should not be meant to be a plausible reason for a potential policyholder to invest in ULIPS. Although, returns assessment helps, there are other factors that drive the performance of unit linked insurance plans.

Large Cap Equity ULIP Fund

· At the category level, the large cap section has given returns of around 12.75%. Also, some of the large cap ULIP funds have considerably outperformed the BSE 100 Index.

· Some of the top ULIP funds have recorded compounded annual returns of around eighteen per cent during the course of the last five years.

· Generally speaking, the performance of the large cap ULIPs has been considerable, given that the returns have remained more or less within the same range.

Flexi Cap Equity ULIP Fund

· At the category level, the returns have hovered around eleven per cent. Compared to the diversified funds, the performance has been below par.

· Taking into consideration the five year range, the flexi cap category has not performed well. However, it has been considerable during the course of the last three years.

Small and Mid Cap Equity ULIP Fund

· Generally speaking, across some of the major fund houses, the performance of the small and the midcap funds has been relatively good.

· The average returns have hovered around sixteen per cent during the course of the last five years. It may be mentioned that the best performance of the ULIP funds in this section has primarily come from Bajaj Allianz.

Sector Equity ULIP Fund

Not popular with the investors at large, the sector section of the ULIPs have struggled to chalk out a good performance, managing only up to one to two per cent returns during the course of the last five years. However, it must be mentioned that the section has performed relatively well in the infrastructure and energy sector in the last one year.

It is important to recognize the fact that for investors at an early stage of the investment, the actual returns are going to be low. The various charges such as the premium allocation charge, mortality charge and the policy administration charge are subtracted from the premium. There are also other charges that are imposed on a monthly basis.

Therefore, to revert to what has been already mentioned, it is always recommended to switch between ULIP funds in order engender a considerable rate of returns. Surrender costs apply. It must be kept in mind that in case the ULIPs are not performing well, the concerned investor would do good to undergo a cost benefit analysis of the surrender charges he or she needs to eventually shell out.

It is important to monitor the unit linked insurance plan on a regular basis if one has already invested in one. Also, in order to eke out better returns, it is of utmost importance to be precise about one’s investment objectives and insurance goals. Generally speaking, the volatility of ULIPs is to be considered while analyzing the performance ratios.