Every individual chooses their investments wisely as they are pouring into it their hard-earned money. The returns on the investments help one reach their short-term and long-term financial goals. One investment that is gaining popularity for its high returns is the ULIP which stands for the Unit Linked Insurance Plan. If you have bought a ULIP or are planning to do so, it is important to know about its investment component and how it’s the fund performance measured.
Understanding ULIP as an investment
The meaning of ULIP, based on its abbreviation, is the linking of life insurance with an investment aspect. The premiums that you pay for it are partly used towards providing life cover and partly invested in funds of your choice. For choosing funds, there are several options ULIPs offer, which you can based on your risk appetite. If you can take risks, equity funds would be the ideal choice. While debt funds are preferred if you are looking for a safe form of investment. If you want to take some risks while being protected, balanced funds would be the most suitable option. In balanced funds, your money is partly invested in debt and partly in equity. This ensures that you take moderate risks and get moderate returns.
ULIPs have a lock-in period of 5 years. It is recommended to stay invested in it for the long haul and benefit the most from it through compounding. You can use a ULIP calculator and invest according to your financial goal. One of the remarkable features of a ULIP is that it allows you to switch your allocation from debt to equity, and vice versa. Since ULIPs are directly linked to the market, this feature helps you to make the most of the market fluctuations. Once you have bought a ULIP, just like any other investment, it is important to monitor its fund performance.
Accessing your fund performance
Usually, the insurance provider or the investment advisor timely informs the policyholder how their ULIP is performing. If one has purchased it online, they can easily check the fund performance anytime on their insurance company’s website. For tracking the performance, there are two indicators:
Trailing
One way to measure how a fund is doing is through trailing or point-to-point returns. It reflects how a ULIP has performed over a specific time period. The policyholder can choose the time that they want to track and check the performance accordingly.
Rolling returns
Another way of tracking the performance of a ULIP is through rolling returns. It reflects the performance of a ULIP over multiple time blocks. Through rolling returns, one can know how the fund has been performing over time. Rolling returns are usually preferred as an accurate indicator as it offers a holistic view of the fund’s performance.
Rolling returns reflecting ULIP’s performance
Rolling returns are the ideal way to get a better understanding of how ULIP is performing as an investment. The reason rolling returns offer more accurate results than other methods is that it overcomes the point-to-point bias. It allows one to view how their fund is performing in an overlapping cycle. For example, one can ask their insurance provider or advisor if they want to see two-year rolling returns over the past ten years by shifting a day at a time. This ensures that the policyholder gets a better overview of the fund’s performance. One can opt for many years for rolling returns and choose daily, weekly, or monthly frequencies to check the performance.
Once you have bought a ULIP, it is important to be patient to get successful returns. To get high returns, it is important to stay invested in it as long as you can. If you are confused about your fund allocation, use tools like the ULIP calculator and consult your fund manager. Depending upon your risk ability and the market scenario, the fund manager could suggest the ideal allocation for you. Several investors cannot understand the true meaning of ULIP and surrender it quickly. This results in losing returns over the long haul. Also, check the rolling returns of a ULIP to know its fund performance before investing.
