What is NAV in ULIP?
Unit-Based System
When you invest in a ULIP, your investment is divided into units. Each unit has a Net Asset Value or NAV. It represents the market value of the underlying assets. The NAV of a ULIP is the per-unit value calculated daily, so your total investment moves in line with that unit value's changes.
NAV Indicates Fund Value
ULIP NAV gives the overall picture of how the market linked fund is performing. The fund value on a particular day is calculated by multiplying the total number of units by the net asset value of each unit on that day. This means that if the NAV of your ULIP plan goes up, the fund value increases, and if the NAV goes down, the fund value decreases.
NAV Sets Buy/Sell Price
The NAV of a ULIP can be thought of as the price of one unit when you buy or redeem the units. On a new day, when you invest more premium to the fund value, you’re allotted fresh units based on that day’s NAV. Similarly, when you redeem or surrender the units that you own, you’re paid based on that day’s NAV.
How is NAV in ULIPs Calculated?
The NAV is typically expressed as a per-unit value, and it is calculated by dividing the total value of the assets (less liabilities) in the portfolio by the number of units of the policy. Use the below formula to compute the same:
NAV of ULIP = (Market value of investment held by fund + value of current assets value of current liabilities and provisions , if any) / Number of units existing on valuation date (before creation / redemption of units)
As market conditions fluctuate daily, your ULIP’s NAV also changes accordingly. The percentage increase in the net asset value helps investors measure improvements in fund performance.
Let us understand it with an example:
Suppose A and B invest ₹60,000 and ₹45,000 in the same ULIP. After deducting charges and the premium that goes towards life insurance coverage, their investable amounts are ₹59,400 and ₹44,550 respectively, summing to ₹1,03,950. Assuming the face value of each unit as ₹10, A has 5,940 units and B has 4,455 units, making 10,395 units in total. If the fund value later increases to ₹1,20,000, the new ULIP NAV becomes ₹1,20,000 / 10,395 = ₹11.54 per unit. Both investors earn ₹1.54 per unit, which clearly shows how ULIP NAV tracks fund growth.
How ULIPs and NAV Work?
Here’s how ULIPs and NAV work step-by-step at different stages:
Pooling of Funds
The premium amounts collected from different investors are pooled together in a common fund. This pooling helps the insurance company to invest in bigger, diversified portfolios.
Investment
The fund manager allocates this pooled money into equity, debt, or hybrid instruments, depending on the fund type and market conditions.
Unit Creation
The insurer then divides this fund into small units among investors, with a particular face value. This is the current NAV.
NAV Calculation
NAV is calculated daily as per this formula:
NAV of ULIP = (Market value of investment held by fund + value of current assets value of current liabilities and provisions , if any) / Number of units existing on valuation date (before creation / redemption of units)
Performance Indicator
Changes in NAV with time help in assessing the market linked fund’s performance. An increase in ULIP’s NAV indicates growth in ULIP investments and vice versa.
Why Is The NAV Important?
Performance Monitoring
You may check the NAV of your ULIP to understand how your market linked funds is performing. A higher NAV compared to the one at the time of investment means the funds are growing, while a lower NAV means a loss in the ULIP investment.
Fund Reallocation
Tracking your investments and returns helps you to make switches and changes in your ULIP fund allocation. You can shift between equity , debt , hybrid funds as per your risk tolerance and the market’s performance.
Return Calculation
The NAV of a ULIP and the number of units held play a crucial role in determining the returns you receive on your investment. The returns on your ULIP may be calculated based on the difference between the NAV at the time of investment versus the NAV at the time of redemption.
Where to find your ULIP NAV?
You can get daily updates on the NAV of your ULIP plan from the website of the insurance company you purchased it from.
What If the NAV of Your ULIP Is Low?
The NAV of your ULIP changes as it is market linked. Due to market volatility, it may get adversely affected. For example, if you have invested in a fund (Equity, Debt or Hybrid) and the markets are down, your NAV may reduce as well.
If the fund is not aligned with your risk appetite and return expectation or you want to change your ULIP portfolio’s asset allocation, you may consider fund switching or premium redirection features available with ULIPs. Fund switching is a feature that may allow you to switch your fund allocation to another asset type that you want. With the premium redirection feature, you may redirect your premium to another fund of your choice.
Knowing the NAV of your plan allows you to take important decisions regarding your investment.
Key Takeaway
- ULIPs provide the dual benefit of life insurance and market linked investment, letting you choose from different market instruments as per your risk appetite.
- Net asset Value (NAV) means the price per unit of the segregated market linked fund , which is updated daily.
- Your fund value is directly dependent on NAV; a higher NAV means growth in the market linked investment.
- ULIP NAV formula is (Market value of investment held by fund + value of current assets value of current liabilities and provisions , if any) / Number of units existing on valuation date (before creation / redemption of units).
- Monitoring NAV helps track performance, reallocate funds, and plan redemptions effectively.
- You can check the NAV of a ULIP from the life insurer’s portal.
Conclusion
The NAV of a fund is it's per unit value1. It determines the number of units that you can get for a given investment amount. Changes in the NAV signify changes in the fund value wherein you make a profit if the NAV rises and a loss if it falls2.
Understand what a ULIP NAV is all about and how it is calculated. Assess the historic NAV of the fund that you have selected to estimate the fund’s performance consistency and then invest.
FAQs
1. What does NAV indicate?
NAV indicates the current market value of each unit of the fund2. It depicts the number of units that you will get when you invest a specified amount in the fund. At the time of redemption, NAV indicates the total value that you will get based on the number of units that you redeem.
For instance, if the NAV of the fund is Rs. 10 and you invest Rs. 10,000, you will get 1000 units at the time of investment. On the other hand, if the NAV of the fund is Rs. 15 and you want to redeem 1000 units, you will get Rs. 15,000.
2. Is ULIP NAV affected by market volatility?
The NAV, or Net Asset Value, reflects the per-unit value of the chosen market linked fund. It changes daily based on how the underlying assets in your chosen market linked fund performs. A rising NAV typically indicates a strong fund performance and an increase in your investment’s value, while a falling NAV may indicate market volatility or weaker asset performance.
3. How often does ULIP NAV change?
The NAV of a ULIP is updated every day, reflecting changes in the market value of the fund’s investments. So, depending on how the markets move, the NAV can go up or down daily.
4. What is the return offered by ULIPs after 5 years?
The return offered by ULIPs after 5 years cannot be predicted because they are not guaranteed. The returns depend on market performance and can be calculated based on the NAV of the units at the time of buying the policy and the NAV after 5 years.
5. What is the difference between NAV and fund value?
NAV means the per-unit price of a ULIP fund, while the fund value is the total worth of all units held by the investor.
6. Can ULIP NAV be negative?
The NAV represents the per-unit cost of the portfolio. It cannot be negative since the underlying assets would always have a market value, and that market value would be greater than 0.
7. Is a higher ULIP NAV always better?
A higher NAV indicates the current market value of the fund depending on how it has grown over the past. However, it does not guarantee future returns.
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