ULIP Calculator: Your 101 Guide to Investment Planning

A Unit Linked Insurance Plan (ULIP) is a combination of insurance & investment, which means a part of the premium is allocated towards life coverage, & the other one is invested in financial instruments. These funds offer flexibility in making payments towards premiums & allocation of funds, where you can customise the plan as per your financial goals & risk tolerance. It also provides an option to switch between the funds with your changing requirements & the life milestones you reach. 

One should compare the costs involved & returns received before you invest your funds in any of the financial products. A ULIP return calculator is one of the most popular financial tools that can be used to help you plan & evaluate investments in ULIPs considering various factors, like premium amount, tenure, age, rate of return, etc.

Why should a ULIP Calculator be used?

After understanding What is ULIP, now let us know why a ULIP calculator should be used:

• It also helps in monitoring how well your investments are performing.
• It should be used to evaluate the financial risk.
• It also helps in understanding the amount to be invested to achieve the desired returns.
• It helps in setting financial objectives.
• It helps to plan the finances for the available investment options chosen.
• It should be used to compare different investment options available to the individual.

Characteristics of a ULIP Calculator

Below are the salient features of a ULIP calculator:

• Flexible

ULIP calculator is flexible when it comes to deciding the investment amount, which can be changed depending on the requirements.

• Transparent

A ULIP calculator offers transparency, which allows us to determine the returns on investments for a specified tenure.

• Flexible Investment Tenure

Input the preferred investment tenure as you choose to get the expected returns.

• Easy to Use

It is a simple-to-use tool that requires you to enter some basic details to know the number of returns.

• Real-Time Calculations

It instantly provides real-time results, i.e. expected returns, when parameters such as investment tenure, amount, expected rate of returns, etc., are entered.

How should we Calculate ULIP Returns Online using the ULIP Calculator?

Let us know how to use a ULIP Return Calculator:

Step 1: Go to a reliable ULIP return calculator online.

Step 2: You will be required to provide the essential details like the investment amount of your choice, expected growth rate and investment tenure. Based on these inputs, the calculator will provide the returns.

Step 3: Click on the “Calculate” button and check the total investment amount, estimated returns and maturity amount. 

Step 4: You can also calculate by another logic, which is the goal that you want to achieve. Enter the investment goal, expected returns and investment tenure and you will be provided with the information of how much you should invest monthly to achieve that goal.

How to Use a ULIP Calculator?

Provided are the steps to use a ULIP Calculator:

Step 1: Fill out the Basic Details

To start with, enter the details such as the premium amount to be invested, policy tenure, & the expected rate of return to get an estimate of the potential returns.

Step 2: Choose the Funds

Now, select the type of funds in which investment is to be done, like debt, equity, or balanced funds, depending upon your risk tolerance level. The risk & return of the investments will depend upon the funds selected. 

Step 3: Choose the Rate of Interest

Select the rate of interest to ascertain the returns on investment with the help of the ULIP calculator.

Step 4: Click on Submit Button

Click the tab “Submit” to get the returns on investment & know the different plans available.

Step 5: Review Details

Review the details received by entering the details into the calculator, i.e., the principal amount plus the total amount of interest to be received.

Step 6: Adjust Parameters

You can also adjust the premium amount, expected rate of return, or policy tenure to ascertain how investment returns get affected in different situations. 

Formula to Calculate ULIP Returns

There are two formulas available to calculate ULIP returns, let us evaluate them:

• Absolute Returns

It depicts the percentage increase in the value of ULIP over a period of time. The negative return shows depreciation, & the positive one shows an appreciation in the value of an asset.

Absolute returns = [(Current value – Value at the time of purchase) / Value at the time of purchase] x 100

    For instance, the initial NAV = INR 250

    Current ULIP NAV = INR 350

    Absolute Returns = {(350 – 250) / 250} * 100 = 40%

• CAGR ( Compound Annual Growth Rate)

The compounded annual growth rate depicts the annual growth of an investment over a specified period of time. 

CAGR = {[(Current value / Value at the time of purchase) ^ (1 / number of years)] – 1} x 100

For instance, the initial NAV = INR 25

Number of Years = 5

    Current ULIP NAV = INR 35

    Absolute Returns = {[(35 / 25) ^ (1 / 5)] – 1} * 100 = 6.96%

Which Method is to be used?

Conclusion

ULIP Return Calculator is a simple & easy-to-understand effective tool that helps us know the premium amount along with the expected rate of return. It also helps in selecting a portfolio depending on the willingness of investors to take the risk. However, these calculators also work on presumption & past performance basis, & they may not deliver the results accurately. Hence, it is advised to be more cautious while using calculators before investing in ULIPs.