How To Assess The Performance Of Your Ulip

  Author: Naveen Kumar

For more than a decade, Unit linked insurance plans (Ulips) offered by various life insurance companies have been quite popular in the country. Despite its popularity, one can’t really say that the typical Ulip customer is well-informed about its many features. As a result, a lot of the grief for investors is caused due to wrong purchases of Ulips.

An almost equal amount of grief is caused by investor ignorance in evaluating the performance of Ulips. Over the years, many investors have made premature exits from Ulips after drawing wrong conclusions about their Ulips’ performance. This has meant a great cost to the investors since exits before the end of tenure and after the end of the mandatory lock-in period, set the investor back substantially. So then, what is the best way for an investor to evaluate the performance of an Ulip? Here are some essential steps.

Identify a right benchmark Ulips offer you the opportunity to invest in various funds with varying combinations of equity and debt. Based on the composition of your Ulip fund, you would need to identify right benchmark. For instance, if your fund is predominantly a large cap equity fund, you can choose BSE Sensex or NIFTY 50. However, if it has more of mid cap stocks you can opt for corresponding indices on BSE and NIFTY. Similarly, to compare the performance of your debt fund, you can choose relevant bond fund index such as the one from CRISIL.

Choose appropriate evaluation period Ulips allow you to combine growth investments with tax deduction available under Section 80C. The growth comes from investment in equities which are typically rewarding if you stay invested for 8-10 years or more. It would not help you if you evaluate or your fund’s performance too frequently like daily or weekly basis. Remember, markets go through volatility in short run. You should give adequate time to your fund to get its performance on track. Therefore, it would be ideal to do your evaluation at least on a quarterly or semi-annual basis.

Calculate the net yield There are times when all the gains made by your selected funds may not translate to your net gains. Since your policy would be subjected to various recurring costs like those related to policy administration and fund management which is deducted from your funds, what matters to you is the net gain that you get from your Ulip. For this, you would need to check your Ulip statements. They give you an idea of the net gains. You need to compare them with your chosen benchmark.

Prefer consistent performance Don’t get unduly influenced by sudden surge of your Ulip fund value. Remember, infrequent surges would be difficult to repeat over a long period. Ulip is a product for long term goals and therefore, you need a fund which is a consistent performer. It would increase the chances of the achievement of your goal.

Clearly, Ulip investments need monitoring and a basic understanding of how they work. Like all investments, they work well for you when you use them the right way.