What Are Absolute Returns in ULIPs?

In today’s markets, many financial instruments offer you the opportunity of safe investment to grow your wealth. While there are traditional options, such as directly investing in the stock market, people also look for safer investment options. One such investment option that you can utilize is a ULIP.

ULIPs have been gaining a lot of popularity, especially among first-time investors. Different terms are used to describe the returns in ULIPs. One such term is absolute returns. What exactly are these returns? How do you calculate them? Read on to find out more.

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What is a ULIP?

A ULIP is a type of life insurance policy that offers the benefits of investment and insurance in the same plan. You can invest in equity, debt, or balanced funds in this plan. Equity and debt funds have different risk factors and offer separate returns, while balanced funds combine both.


This plan also offers life protection coverage to your loved ones from life risks. If you were to pass away during the policy term, your family would be compensated via a death benefit. This amount would help them manage necessary expenses while having a financially safe future.

What are absolute gains?

Speaking of investment, absolute returns mean the returns you get from your investment in an asset over a specific period. As many assets you can invest in, the definition of final returns could vary. However, in ULIPs, total returns usually denote the returns you gain during your investment’s initial period.

How do you calculate absolute gains?

Absolute gains, also known as total returns, can be calculated using the following method:

The formula to calculate real returns is: [(current NAV-initial NAV)/Initial NAV]x100

To calculate absolute returns, you need to follow the steps:

  1. Know what your initial and current net asset value (NAV) is
  2. Subtract the initial NAV from your current NAV
  3. Divide the value that you have from this subtraction by the initial NAV
  4. Multiply the sum of this division by 100

Absolute returns are the returns you get when calculating the difference between the current NAV and the initial NAV of your policy. This type of return is also known as a point-to-point return. While this method is quite easy, given that you know the values of the NAV, it is only useful when your calculations are based on the initial investment period. It would not give you an idea about the gains beyond the initial period.

What is the other way to calculate these gains?

While you can use the above method to calculate your gains from the initial investment, if you want to calculate annual payments, you can use the following method:

Compounded Annual Growth Rate (CAGR)

If you want to calculate the annual returns for a specific period of your policy, the Compounded Annual Growth Rate (CAGR) is the method. Using this method, the policyholder can calculate the overall annual returns of their plan.

The formula for calculating the CAGR is: [{(current value of NAV/initial value of NAV)^(1/number of years)] – 1}x100

While CAGR might give you a mean value when you want to get the value of your annual returns, note that there is one drawback. It does not consider the impact market volatility has on your investment. Market fluctuations impact ULIPs, meaning that your returns could either increase or decrease based on the state of the market. This might not give you an accurate figure.

If you want to invest in the plan, you can use the ULIP return calculator to see what kind of returns you would get based on your investment. If you want to calculate absolute gains, you can use these methods. Contact your insurance advisor to learn more about the calculation process.


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