What is the Method of Arriving at ULIP Net Asset Value for Surrenders, Maturity Claim, or Switch?

Known as unit-linked insurance plans, ULIPs are financial products that combine life insurance coverage and investment. This offers policyholders the double benefit of financial security and investment returns for wealth generation. It helps you and your family to be prepared for dire situations in life with insurance coverage. While doing that, it offers investment returns that can help you achieve various financial goals. These include buying a house, funding your child’s education, creating a retirement corpus, etc.

ULIP provides a wealth creation opportunity and life insurance cover. ULIP calculators are available online to help you know the premium you need to pay. While you are making the investment, you can choose the funds that you feel comfortable with. This decision is recommended to be taken based on the returns you wish to have and your appetite for risk. Once the plan reaches maturity or a claim is made, the policy disburses a value known as fund value. The Net Asset Value (NAV) of the plan decides this amount.

What is Net Asset Value?

Net Asset Value (NAV) is the monetary value of every unit after the monetary value of any liabilities related to the investment fund have been subtracted. It is essentially the number that shows the worth of funds you own. Any change that you see in the Net Asset Value is an indicator of how your funds are performing in the market. Hence, if you want to invest money through ULIPs, you need to understand ULIP NAV.

Just like you, many other investors make premium payments towards ULIP. Once the insurance provider receives this money, it pools it with the money from other investors that wish to invest in the same fund that you wish to. After doing so, the insurance provider makes the investment in different market instruments. This is to ensure that your investments are large and diverse and have a higher chance of good returns.

Based on the premium you pay; you can buy a fixed number of units. Each of these units has a face value and all of them together create the total amount that the investment is worth. This is what is known as Net Asset Value. As the fund perform better, the value of each unit grows.

What affects NAV?

What your NAV would be depends on the date that you make an application related to your ULIP plan. More precisely, it applies to the exact time in the day that you make that application. If your submitted valid application is for a surrender, maturity claim, or fund switching, they will look at the time that the application has been made. If the application has been made before 3 pm, the closing NAV of the same day will be considered. Now, if your application is submitted after 3 pm, the insurance provider will consider the NAV of the next business day for the transaction.

What are some misconceptions about NAV?

Firstly, a high NAV does not necessarily always mean high cost. NAV is just the face value of ULIPs after the expenses and the liabilities have been deducted. Moreover, there is never a misrepresentation of a high NAV. All an NAV does is simply display the assets’ fair price. If on a certain day, the mutual fund you prefer liquidates all their investments, you would have to pay attention to their NAV instead of their price. Whether it is high or low, the price does not indicate the quality of the mutual fund. The NAV will tell you how well the fund can perform.