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How Is ULIP NAV Calculated

Today, young investors have a plethora of investment options available in the market. Along with traditional mutual funds and SIPs, people now have Unit Linked Insurance Plans (ULIPs) as a sound investment strategy.

But what is ULIP plan?

ULIP is primarily an insurance option available in the Indian market. The policy offers dual benefits of life insurance cover and investment. Here, a part of the premium paid towards ULIPs is used for life insurance; whereas the remaining portion is used to invest in funds of your choice. Investors have the liberty to invest in debt funds, equity-oriented funds, or a combination of the two, depending on their risk appetite.

The investors buy these fund units at its NAV (net asset value). It is important to understand what ULIP NAV is and how it is calculated when investing in ULIPs.

A part of the premium collected from a pool of investors is pooled in to create a lump sum amount. This amount is invested in different market-linked investments. To divide the returns on the investment among the investors, the insurer divides the corpus into small units with a particular face value. The ULIP NAV is nothing but the price at which the investors buys/sells the fund units. In other words, it represents the current market value of the fund.

How to calculate the ULIP NAV?

The rate of the unit is calculated, and the liabilities are deducted from it on a daily basis. The total number of units are divided from the amount you get after deducting the liabilities. The resulting amount is called the ULIP NAV.

In simple terms, NAV is the market value of the fund units. It helps investors to track the performance of their funds. Investors can determine the increase in the fund performance by calculating the percentage increment in the ULIP NAV. Overall, the NAV represents accurate details of the ULIP fund performance.

The formula used to determine the NAV is –

NAV = (Value of the current assets + Market value of the investments held) – (Value of the current liabilities) / The total number of units.

The following example will help you understand the formula better. Let us take a look.

Consider that Aditi and Athiya bought ULIP investments for the same insurer. Aditi invested INR 50,000 while Athiya invested INR 40,000 in their respective ULIPs. For the said premium amount, the insurer deducted associated charges after which the investment amount is said to be INR 49,500 and INR 39,600 for Aditi and Athiya, respectively.

The total amount available with the insurer is INR 89,100 that can be invested in different market-linked funds. Now, let us assume that the fund manager has units with a face value of INR 10 per unit. On the basis of this, Aditi will hold 4950 units under her name; whereas Athiya will hold 3960 units.  The total number of units within the fund is 8910 units.

Now let us assume that the investments earned a profit, which increased the fund’s net value to INR 100,000. Based on this, there will be a new ULIP NAV. This new NAV is calculated by dividing INR 100,000 by 8910 units. Therefore, the new value of each unit in the fund will be INR 11.22, and both Aditi and Athiya have made a profit of INR 1.22 per unit.

It is important to note that investors can use the ULIP NAV to determine the simple ULIP plan returns on their initial investments. But since ULIP allows you to invest in different funds and the returns are based on the compounding of these investments, you cannot use ULIP NAV to calculate the actual return on investment on your policy in the long run.

Also, many insurers offer ULIP calculator tools that help determine the return on investment and the premiums charged on the chosen policy. This tool comes in handy when you are looking to invest in ULIPs and are overwhelmed with the options available in the market. 

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