ULIP Returns in 20 Years

Table of Content

1. What Is a 20-Year ULIP Policy?

2. How Does a 20-Year ULIP Policy Work?

3. Why Choose a 20-Year ULIP Policy?

4. How Are 20-Year ULIP Policy Return Rates Calculated?

5. Key Factors Affecting ULIP Returns in 20 Years

6. FAQs on ULIP Returns in 20 years

In this policy, the investment risks in the investment portfolio is borne by the policyholder

Every good financial plan includes investment and life insurance coverage. Unit-Linked Insurance Plans (ULIPs) combine the benefits of both under a single policy. ULIPs enable you to invest in market-linked funds while providing life coverage to safeguard your family’s finances. A 20-year ULIP helps you meet your long-term goals. Let’s better understand how these policies work.

What Is a 20-Year ULIP Policy?

A 20-year ULIP policy provides life cover for 20 years. If the policyholder dies within the 20-year term, their family will receive a lump sum payout. In addition to life coverage, the 20-year ULIP policy allows the policyholder to invest in various fund options, such as equity, debt, or balanced funds. The premium paid towards the policy is divided between the life cover and the investment, providing a dual benefit. Investors can choose the fund allocation based on their risk appetite and future financial goals.

How Does a 20-Year ULIP Policy Work?

The 20-year ULIP (Unit Linked Insurance Plan) policy is designed to provide more in a single plan. A single plan provides life coverage as well as an investment opportunity. A part of the premium is carved for life coverage and the rest is infused into market-linked assets of your choice to build a corpus to achieve financial goals. The potential returns on your investment in 20 years depend on the market behavior. 

Suppose you invest Rs. 50000/- annually in a ULIP and your investment strategy is inclined towards select balanced funds, over 20 years, your portfolio grows steadily despite temporary market downturns. While your investment is growing, you have the benefit of life cover as well for the entire term.

Why Choose a 20-Year ULIP Policy?

Let’s see how a ULIP investment for 20 years benefits you.

• Market-linked Returns

  ULIPs let you invest in market-linked equity and debt funds. You can select a balanced fund that invests in both to diversify your portfolio. Market-linked plans often provide higher returns than traditional low-risk savings.

• Flexibility

  ULIPs allow policyholders to choose their investment funds and make switches to take advantage of market fluctuations. Investors who understand the market can trigger fund changes to boost their returns.

• Partial Withdrawals

  ULIPs allow partial withdrawals in financial emergencies. Policyholders can liquidate some funds to help pay for their child’s education or marriage without exiting the plan.

• Tax Benefits

  ULIPs offer multiple tax benefits under Section 80C^# and Section 10(10D) of the Income Tax Act of 1961. The amount you invest enjoys tax deductions under Section 80C^# of the Income Tax Act.

  Proceeds received on surrender/partial withdrawal/maturity of ULIP plan are exempt from tax subject to provisions mentioned in Section 10(10D) i.e if the premium payable for any of the years during the policy term does not exceeds 10% of the death sum assured.

  In addition to the above, for policies issued after 1st Feb 2021 tax exemption on maturity proceeds will be available if premium paid in any of the years towards such matured polices does not exceed Rs.2,50,000. Out of the total matured policies in a financial year, exemption u/s 10(10D) will be available only towards those polices who’s aggregate premium in any years does not exceed Rs. 2,50,000/.

  Income from rest of the policies exceeding the mentioned limit will be chargeable as capital gains.

  Death proceeds are also exempt from tax for all ULIP plans.

• Life Coverage

  Your ULIP policy offers life coverage, providing your loved ones with financial security and stability, regardless of what happens to you.

• Long-term Investment

  With ULIPs, the longer you stay invested, the better. Your ULIP returns in 20 years will be much better than returns over five to ten years. A 20-year ULIP helps you build a corpus for your long-term financial goals.

How Are 20-Year ULIP Policy Return Rates Calculated?

It is pivotal to evaluate the 20-year ULIP growth over 20 years for an informed decision. The market dynamics, the premium amount, and the funds invested in all play a key role in determining the ULIP policy return rates. 

ULIP Fund Investment

A smart investment strategy is important for a good yield on your investments. Diversifying the portfolio to match your financial goals and risk tolerance boosts the chances of creating a significant corpus, as the returns are linked to your portfolio performance. ULIP 20-year investment horizon returns are promising, owing to market cycles and cumulative growth. 

Net Asset Value (NAV)

The Net Asset Value is the value of each fund unit at any given time. It is calculated manually using the formula:

Net Asset Value =  (Market Value of Assets- Liabilities) / Number of outstanding units. 

The value oscillates each day depending on the market circumstances. 

20-Year Return

Evaluating a 20-year return gives you an insight into how your monthly or annual subscriptions to ULIP work for you. You can calculate the 20-year return in two ways using the Net Asset Value.

ULIP Returns = {(Current NAV - Initial NAV) / Initial NAV} * 100This formula calculates absolute returns.

CAGR of 20-year ULIP =  {[(Current NAV/ Initial NAV) ^ (1 / 15)] - 1} x 100

Current NAV is the projected value of the per unit fund value on maturity and initial NA is the value of the unit on the date of purchase. 

ULIP Flexibility

With ULIP flexibility you can adjust your investment strategy periodically according to changing market trends, your financial goals, and risk appetite. It lets you alter your investment portfolio with changing market scenario. This feature helps you optimise your returns.

Key Factors Affecting ULIP Returns in 20 Years

To optimise ULIP returns over 20 years, you must consider the following factors:

Market Fluctuations

The returns on investments in 20-year ULIP are subject to market ups and downs. The returns on equity funds are high when the market is going strong and plummet in weak market conditions. A periodic review of your portfolio and readjustment according to changing market sentiments, goals, and risk profile can optimise returns.             

Choosing the Right Funds

A lot depends on the funds you choose, including the returns. Diversifying and balancing your portfolio is a great way to neutralise risk with reward.

Charges That Impact Returns

An investment in a 20-year ULIP attracts several charges such as premiums, administration fees, fund management fee, and mortality charges. These charges affect the returns. For a thoughtful decision, you must understand the fee structure of the ULIP fund and choose low-cost funds to maximise returns.

FAQs on ULIP Returns in 20 years

Q. Can I withdraw my ULIP investment before 20 years?

Yes. ULIP lets you withdraw partial amounts after the 5-year lock-in period. These withdrawals reduce the overall returns. Financial advisors advocate against partial withdrawals to optimise benefits and avoid exit charges. 

Q. What are the average ULIP returns over a 20-year period?

The average ULIP returns are linked to the fund type and market trends. On average ULIPs fetch 10-12% returns over 20 years. Debt funds, however, deliver lower returns, i.e., 6 to 8%. However, historical performances are not a precedent for future gains.

Q. How do market conditions impact ULIP returns in 20 years? 

Market volatility plays a pivotal role in determining NAV. An upmarket trend results in a high NAV, whereas a downmarket trend results in a lower NAV. However, long-term investments offset these fluctuations and are potentially rewarding. 

Q. How to calculate ULIP maturity value after 20 years? 

You can calculate ULIP maturity value after 20 years using the formula—Total outstanding units * Net Asset Value on maturity.  Monitor NAV closely to track your fund’s performance. 

Q. Are ULIP returns in 20 years sufficient for long-term goals?

Yes. ULIP returns in 20 years are sufficient for long-term goals. Prudent fund selection is crucial to generate a substantial corpus for your long-term goals such as saving for retirement, children’s education, buying a home, a world tour with family, etc..

Q. Is it safe to rely on ULIP returns from the last 20 years for planning?

Historical returns help you understand how a fund has performed in the past, but cannot be a yardstick for future returns. To build a strong portfolio, diversify your investments. If required, consult a financial advisor for expert advice.

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