What you should know about ULIP NAV concept?

Posted by Ritika Shah on July 16th, 2016

People aspire for more money, high profits and good returns. The entire investment chain revolves around this 3-tier system. During your investing age you try to nest your money in equity, debt fund or mix funds so that you extract maximum returns from the markets and secure your future. While there are various investment channels in market, ULIPs are one of the good forms of investment that will not only help you gain good returns but will also cover you safely during this race of earning money in life. Returns on ULIPs are decided on the basis Net Asset Value (NAV) during the policy term.

ULIP NAV is calculated by adding the ULIP on a particular day deducting certain charges and fund management charges. NAV represents the value of the total holding of the ULIP or mutual fund. It is divided by the number of units held by investors and therefore represents NAV per unit.

Most people think higher NAV means expensive funds and often choose to skip it in their investment agenda. They opt for an investment with a lower NAV because it is inexpensive. But let us understand that the NAV is merely the book value of the ULIP or mutual fund investment removing the expenses part from it.  It represents the fair price of its assets should the mutual fund liquidate all its investment on that day. Investors should not be worried about the price being too high or low. It has no significance and should not be the basis for choosing the right ULIP or mutual fund. Therefore, a higher or lower NAV holds no significance and should not be the basis for identifying the right ULIP / mutual fund.

Nowadays, if you wander around the markets we see an “innovative” product known as highest ULIP NAV guaranteed plans. These products have come in after the market crashes. Companies are taking advantage of customer concerns of some kind of safe investment equity product and hence launches these highest NAV returns ULIPS. In highest NAV guarantee, the ULIP scheme structured in such a manner that the collected funds can be invested either in equities, debt instruments of in money-market in proportions varying from 0 to 100%. They work in strategies like Dynamic Hedging and CPPI (Constant proportion portfolio insurance), which are advanced strategies used in Derivatives world.

These schemes don’t provide wide range of product categories such as equity-oriented growth funds, balance funds and debt funds. You get guarantee of highest NAV if you survive the term. If you die during the term, your nominees will get the prevailing value of the fund.

Returns from these schemes may be lower than the returns offered by equity-oriented ULIPs. The basic objective of protecting the previous high ULIP NAV of the fund, may constrain the fund manager’s ability to take risks while allocating funds. This is because if the market crashes down, the fund manager cannot take the risk of shifting the money from debt to equity for gaining from the potential upsides in future.

Source: http://youknowitbaby.com/article/12914/what_you_should_know_about_ulip_nav_concept.html

Like it? Share it!


Ritika Shah

About the Author

Ritika Shah
Joined: July 7th, 2016
Articles Posted: 22

More by this author