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NAV in ULIPs: All you need to know

Sep 09, 2019 | 11 months ago | Read Time: 3 minutes | By iKnowledge Team

When an individual start earning, s(he) aims to acquire as much wealth as possible in a short period of time. They start looking for various options available around them. At first, they are advised to keep the money in a savings account, but low and sluggish returns always succeed in diverting them towards higher and faster returns providing sources. As they grow older, they realize that they are responsible for many lives and their existence is important for some people, to which they start looking for insurance policies.

In the pursuit of wealth accumulation and financial security, it is possible for people to get confused. It is not easy to manage investments and insurance at the same time. Although insurance premiums are not much of a problem for people, managing shares with a regular day job can indeed be chaotic. A viable solution to this can be ULIP funds.

What is a ULIP policy?

Unit Linked Insurance Plans or ULIPs are hybrid insurance policies. They are a combination of insurance and mutual fund investments, which make them a great option to maximize profits. This insurance plan uses the premium paid by the policy holder to invest in mutual funds schemes. The returns gained from mutual funds are later added to the policyholder’s bank account or to the maturity amount. In case the policyholder dies, the sum assured or the value of the fund (whichever is greater) is paid to the nominees. Before you invest in ULIP funds, there are some important things you should know about ULIPs such as the Net Asset Value (NAV).

What is NAV?

Net Asset Value can be defined as, the sum of the market value of all the shares held in the portfolio including cash and liabilities, divided by the total number of units outstanding. Thus, NAV of a mutual fund unit is nothing but the ‘book value.’

If you want to understand the concept of NAV well, you need to start from the beginning, i.e., the creation of a unit fund. To gain favourable returns from the market, you need to invest a substantial amount. To garner this amount, the money taken from various investors is combined to form one large amount. Once the amount reaches a specific limit, it is invested in the markets. To divide the returns gained from the market investments, the fund manager divides the large amount into units with a certain face value. This leads to creation of shares of units for each investor which depends on the amount a particular investor has invested. The value of each unit is then considered as the NAV. Once investments are made in the market, the total value of the fund can increase or decrease daily and hence, accordingly, the NAV also increases or decreases.

Formula for calculation of NAV

The formula used to calculate is NAV* = “(Market Value of Investments held by the fund + Value of Any Current Assets) – (Value of Current Liabilities & Provisions) / Number of units existing at valuation date (before creation / redemption of any units)”.

If you are seeking to invest in a ULIP fund which offers numerous benefits, you can consider Aegon Life’s plan. Their plan is known for providing perks like the investment switch, funds choice, phased payments, low investment amount and tax benefits. Moreover, you can boost your fund value by adding top-up premiums periodically. It also allows a withdrawal amount of up to 20 percent after 5 years. You can begin investing in this plan with an amount of just INR 2,000.  If you’re looking for a combination of investment and protection, this plan is for you.

To know about Aegon Life’s life insurance products like term insurance and other products, visit our home page.


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