Hello and welcome to FundooMoney, your 24X7 buddy for all your money matters. 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.
One of the key areas of customer ignorance is in evaluating the performance of Ulips. Over the years, thanks to people having bought Ulips for the wrong reasons, sometimes mis-sold, and lack of understanding on evaluating the performance of Ulips, thousands of investors had made premature exits. This has often come at 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, what is the best way for an investor to evaluate the performance of an Ulip? In a few moments, we will provide you with the basic details that you need to know.
Just buying an Ulip and paying your premium is not sufficient to help you meet your goals. You would need to keep evaluating the performance of your Ulip and take corrective measures as when required to ensure that it remains on course. Here is how you can evaluate the performance of your Ulips
Identify a right benchmark Ulips offer you opportunity to invest in various funds with varying combinations of equity and debt. Based on the composition of your fund,you would need to identify right benchmark. For instance if your fund has predominant weightage for large cap equity fund, you can choose BSE Sensex or NIFTY 50. However, if it has more of mid cap stocks, then you can go for corresponding indices on BSE and NIFTY as benchmark. Similarly to compare the performance of your debt fund, you can choose relevant bond fund index such as the one from CRISIL.
Keep the evaluation period appropriate It would not help you if you evaluate or your fund’s performance too frequently like daily or weekly basis. Market goes through volatility in short run. You should give adequate time to your fund to get the performance on track. Therefore, it would be ideal to keep your evaluation period at least on a quarterly to semi-annual basis.
Calculate the net yield Sometimes, all the gains made by your selected funds may not translate you’re your net gains. Since your policy would be subjected to various recurring costs like policy administration and fund management which are 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 that you need to compare with your chosen benchmark.
Prefer consistency over infrequent surges One thing you need to cautious about is getting unduly influenced by sudden surge of your fund value. 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.
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