As he reached his mid-thirties and his kids started school, Rajan decided he needed to begin diversifying his investments. He had never really utilised the wide array of investment instruments available in the market before, and wasn’t entirely sure where he should begin. The more people he spoke to around him, the more confused he became as to whether he should opt wholeheartedly for investment plans, or consider a mix of both investment as well as insurance. Several people advised him that it was more important to focus on insurance now, since he was getting older.

The more information he gathered, the more convinced he was that his best shot lay at investing in Unit Linked Insurance Plans (ULIPs) which acted as a mix of both investment and insurance. Investing in a ULIP granted him the freedom to invest across both low-risk debt securities which promised lower but guaranteed returns, as well as high-risk equity funds which would secure high returns.

Before deciding to go ahead with the investment, he decided to conduct a little research on his own and decipher how to calculate his ULIP returns; and then decide whether it would be a worthwhile investment option. Several online platforms facilitated his task with provision of ULIP calculator on their website.

ULIPs involve the investment portfolio being diversified across a range of funds. This diversification is made based on the investor’s risk portfolio, and the returns that they are expecting to make over a period of time. These days, online portals offer ULIP calculators so that investors can assess for themselves as to how they would want their fund diversified, based on the returns they expect to make. While the actual returns of the ULIP may take some time to manifest, it is a good time to calculate the returns you expect well in advance while keeping in mind a time frame by which you must be able to achieve these.

Read on to learn about the three things you must keep in mind while calculating your ULIP returns.

##### 1. Absolute returns or the point-to-point returns:

With access to the current Net Asset Value (NAV) and the initial NAV of the ULIP, it is easy to calculate the point-to-point or absolute returns that can be achieved with a particular ULIP. This method helps calculate the initial returns of the ULIP, so it can be used in the early phases of the investment. It is effective for calculating returns on a ULIP that has been held for a short period of time, say for 12 months.

To calculate absolute returns, an investor should subtract the initial NAV from the current NAV, divide the result by the initial NAV and then multiply the figure with 100 in order to arrive at a percentage.

##### 2. Simple annualised returns:

This method helps an investor calculate the average amount of money they have earned in a year. However, to calculate the simple annualised returns, the investor needs to know the point-to-point returns earned on the ULIP scheme. Once the point-to-point returns on the ULIP scheme are known, this method can be used to calculate the “effective annual yield” of a ULIP scheme. This method is used to demonstrate the returns for an investor over a period of time, if the annual returns were to be compounded.

To arrive at the numbers for simple annualised returns, a ULIP calculator will first add absolute returns to one, and then raise it to the power of 365 divided by the number of days the policy has been held for so far; and then subtract one.

The Securities and Exchange Board of India (SEBI) has mandated that absolute returns will be displayed when the period of investment has been less than a year, while simple annualised returns are displayed when the period of investment has been exactly a year.

##### 3. CAGR for the investment:

Compound Annual Growth Rate (CAGR) refers to the mean annual growth rate over a period of time, that does not take into account the volatility in returns. If the investment has been compounding over a period of time, the CAGR refers to the growth rate from the initial to the end investment value. To calculate the CAGR, the end value of NAV must be divided by the beginning value of NAV, raised to the power of 12 divided by the number of months the investment has been held for so far; and then one must be subtracted.

It is important to have at least an estimate of the returns that will be generated from ULIPs over a period of time. While, of course, market risks cannot be accurately estimated, ULIP calculators give a fair estimate of the value in returns that can be expected from the investment. Investing in the Future Generali Big Dreams Plan allows investors a chance to calculate their returns in advance, by providing details about the amount they would be investing and the period of investment. Investment premiums starting for as little as Rs. 2,000 a month can yield a significant corpus in returns over a period of time.