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How to Evaluate the Performance of Your ULIP Fund Portfolio

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Evaluate the Performance of your ULIP Fund Portfolio
May 17, 2023

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

Young Indians who want to build wealth and secure their financial future must start investing. With so many investment options available, it can become overwhelming to select the right avenue. Unit-Linked Insurance Plans (ULIPs) have become a popular investment option in India. Once you invest, you should check the fund performance to ensure you're on track to meet your financial goals. Let's better understand these investments and how to evaluate ULIP fund performance.

What Is a ULIP?

ULIPs are insurance-cum-investment financial products that offer market-linked returns and life coverage. Your premium amount gets split into two parts. A small amount goes towards providing life coverage. The rest gets invested in various funds. You can select the fund allocation and make switches to maximise your market returns.

How to Evaluate ULIP Fund Performance?

Before evaluating the performance of your ULIP fund portfolio, you need to understand the basics of ULIP fund performance. A ULIP plan invests your premium in equity, debt, or balanced funds. You can use various parameters to evaluate the fund's performance.

  • Use a ULIP Plan Calculator

    A ULIP calculator helps you evaluate the fund's performance. You need to enter the premium amount, policy term, premium payment frequency, and fund allocation details to get an estimate of your returns. You can then compare your ULIP fund performance to the calculated returns. A ULIP plan calculator also helps you compare the performance of different ULIP plans and select the one that offers the best returns.

  • Evaluate the Annualised Returns

    Annualised returns are an essential parameter to evaluate your ULIP fund performance. Calculated as a percentage, it gives you the rate of return on your investment for a year. You can check the annualised returns of your ULIP plan on the insurer's website, or you can use a ULIP calculator.

  • Analyse the Volatility

    Volatility is the degree of fluctuation in the fund's returns. A high level of volatility indicates a higher risk associated with the fund. You can evaluate the volatility of your ULIP fund portfolio by analysing its standard deviation. A lower standard deviation indicates a lower level of volatility and vice versa.

  • Check the Sharpe Ratio

    The Sharpe ratio measures the risk-adjusted returns of a fund. It considers the returns generated by the fund and the associated risk. A higher Sharpe ratio indicates better risk-adjusted returns. You can use a ULIP calculator to check the Sharpe ratio of your ULIP investment.

  • Evaluate the Alpha and Beta

    Alpha and beta are two crucial parameters that evaluate your ULIP fund performance. Alpha measures the excess return generated by the fund, while beta measures the fund's sensitivity to market movements. A positive alpha indicates that the fund has outperformed the market. A beta of 1 indicates fund returns are in line with the market.

  • Check the Fund Management Charges

    Fund management charges are deducted from your ULIP fund portfolio to manage the fund. These charges can significantly impact your returns. You need to check the fund management charges of your insurance company and compare them with other plans to ensure that you are not paying higher fees.

Why Should I Evaluate My ULIP Fund Performance?

Investing is only the first step. Here's a look at why you need to monitor and evaluate your ULIP's performance regularly:

  • To Make Informed Decisions

    Evaluating the performance of ULIP funds can provide insights into the historical returns and risk associated with the funds, enabling you to make informed investment decisions based on your financial goals and risk appetite.

  • To Correct Course

    Regular evaluation of ULIP fund performance helps you monitor the progress. You can then make required course corrections to stay on track and achieve your financial goals.

  • For Complete Transparency

    Evaluating the performance of ULIP funds ensures transparency in the investment process. You can assess whether the fund delivers the expected returns to meet your investment objectives.

    Evaluating your ULIP fund performance is crucial to maximising your returns. Analysing parameters such as annualised returns, volatility, Sharpe ratio, alpha, beta, and fund management charges can help you make informed decisions about your investment.

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Francis Rodrigues Francis Rodrigues

Francis Rodrigues has a decade long experience in the insurance sector, and as SVP, E-Commerce and Digital Marketing, HDFC Life, manages the online sales channel, as well as digital and performance marketing. He has had hands-on experience in setting up sales channels and functional teams from scratch over a career spanning 2 decades.

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Vishal Subharwal Vishal Subharwal

Vishal Subharwal heads the Strategy, Marketing, E-Commerce, Digital Business & Sustainability initiatives at HDFC Life. He is responsible for crafting and ensuring successful implementation of the overall organisation strategy.

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Disclaimer

The Unit Linked Insurance products do not offer any liquidity during the first five years of the contract. The policyholders will not be able to surrender or withdraw the monies invested in Unit Linked Insurance Products completely or partially till the end of fifth year.

Unit Linked Life Insurance products are different from the traditional insurance products and are subject to the risk factors. The premium paid in Unit Linked Life Insurance policies are subject to investment risks associated with capital markets and the NAVs of the units may go up or down based on the performance of fund and factors influencing the capital market and the insured is responsible for his/her decisions. HDFC Life Insurance Company Limited is only the name of the Insurance Company, The name of the company, name of the contract does not in any way indicate the quality of the contract, its future prospects or returns. Please know the associated risks and the applicable charges, from your Insurance agent or the Intermediary or policy document of the insurer. The various funds offered under this contract are the names of the funds and do not in any way indicate the quality of these plans, their future prospects and returns.

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