Calculating ULIP Returns
ULIP returns are contingent on the funds chosen; high-risk funds offer greater returns, while low-risk funds provide stable but lower returns. To optimize ULIP returns, it’s essential to assess market conditions and strategically allocate funds to maximize returns. There are two primary approaches for computing ULIP returns, absolute returns and compound annual growth rate (CAGR).
1. Absolute Returns: Absolute returns represent the percentage increase in the overall ULIP value, factoring in expenses like management fees and operating charges. To calculate absolute returns, utilize the formula,
[Tex]Absolute~Returns=\frac{(Current~Value-Purchase~Time~Value}{Purchase~Time~Value)}\times100[/Tex]
For instance, if your ULIP’s value at purchase was ₹250 and it becomes ₹350 after one year, the absolute return in this scenario is 40% within the year.
2. CAGR: CAGR aids in assessing the annual growth of your investment over a specific period, providing insight into the year-on-year rate of return. The CAGR formula is expressed as follows:
[Tex]CAGR=\left[ \left( \frac{\text{Current value}}{\text{Purchase time value}} \right)^{\frac{1}{\text{number of years}}} – 1 \right] \times 100[/Tex]
As an example, if the ULIP value was ₹250 at purchase and reaches ₹350 after five years, the corresponding CAGR is 6.96%.
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