What is Net Asset Value (NAV) in ULIPs, and How is it calculated?

You've decided to put your money into ULIP (Unit-Linked-Insurance Plans). You've decided how much to invest, researched your options, and probably even chosen the best ULIP plan for yourself.

Author:IndiaFirst Life | Date:03 Jan 2023 | Time:16:38:00

Read More 1743 Views

What is Net Asset Value (NAV) in ULIPs, and How is it calculated?

You've decided to put your money into ULIP (Unit-Linked-Insurance Plans). You've decided how much to invest, researched your options, and probably even chosen the best ULIP plan for yourself. 

However, before you start investing, you must grasp the NAV (Net Asset Value of a ULIP fund), how it is calculated, and what it represents in this context. 

What is NAV? 

The ULIP plan's performance is measured by its Net Asset Value (NAV). In layman's words, NAV is the market value of the scheme's securities. ULIP invests the money they receive from their policyholders. Here’s how a fund's NAV is calculated: NAV is equal to the Total Number of Outstanding Units divided by (Total Assets - Total Liabilities). 

What is NAV for a ULIP fund? 

A ULIP plan invests in a portfolio of securities in varying amounts based on the fund manager's judgement. Investors that purchase these ULIP plans pay a fee, and in exchange, are given units for their investment. 

The majority of transactions involving these units include the use of NAV. Net Asset Value is never used to assess the investment potential of a fund, much like the share price. The NAV of a ULIP fund is not affected by demand or supply, but changes in the value of its underlying portfolio. Investors can use the price of a share to determine if it is over or undervalued, but not in the case of a ULIP’s NAV. 

A ULIP investor can use NAV to track a fund's success over time by observing changes in the NAV if a ULIP’s NAV rises from Rs 10 to Rs 11 in a year, that indicates a 10% return. 

What is net asset value? 

The market value of all the securities held by the ULIP scheme is known as net asset value (NAV). A ULIP scheme's performance would be indicated by its NAV, or net asset value. 

The market value of the securities in the ULIP divided by the total number of units in the scheme on any given date will give you the NAV per unit of the ULIP fund. In layman's terms, NAV is the market value of cost of your ULIP scheme's units. The unit cost of a ULIP fund unit typically starts at Rs 10 and increases or decreases as as the market value of securities fluctuates. 

You must understand nevertheless that a lower NAV does not necessarily equate to a less expensive ULIP fund. The entire assets minus the total liabilities, divided by the total number of outstanding units, is the NAV formula. 

Calculation of the General Net Asset Value 

You can buy 20 units of a ULIP fund if you invest Rs 10,000 in one fund with a net asset value of Rs 500. Assume you put Rs 1 lakh in a ULIP Scheme A and Rs 1 lakh in ULIP Scheme B. The NAV per unit of the fund scheme A is Rs 10 while that of fund scheme B is Rs 20. You have the following fund scheme units allotted to you: Scheme A: Rs 1,000,000 / Rs 10 = 10,000 units, Fund Scheme B: Rs 1,000,000 divided by Rs 20 equals 5,000 units in your portfolio. 

Daily NAV Calculation 

Every day, after market hours, all ULIP funds compute / received from approved stock exchange as per the market value of their securities. Using the below provided formula, the respective companies deducts all existing liabilities and expenses to compute the net asset value (NAV) of the day. 

Net Asset Value = [Assets – (Liabilities + Expenses)] / Number of outstanding units 

A fund's assets typically include: 

• Stocks 

• Cash and related instruments 

• Bonds or debentures. 

A fund's liabilities and expenses are as follows: 

• Fund management costs 

• Payable towards days purchases of securities. 

Let's look at an example to better understand this calculation. 

Assume an index ULIP fund scheme is in possession of assets worth Rs 100 crores and liabilities of Rs 20 crores. As a result, the fund's net worth is Rs 80 crores. The fund's NAV will be Rs 10 if it has 8 crore units. 

All liabilities and expenses incurred while operating the fund are deducted by the fund manager. The NAV is computed by dividing the total value of a ULIP fund’s cash and securities portfolio minus any required liabilities by the total number of outstanding units. 

RDAI has reinstated the NAV cut-off timings for all fund schemes for subscription and redemption to 3 PM. It applies to all ULIP schemes, regardless of investment quantities. 

NAV's Importance to Investors 

NAV is important when it is time to redeem your investments. The capital gains you earn are determined by the net asset value of the plan on that specific day. The profit or loss on the fund investment is calculated as (NAV at which you buy - NAV at which you sell) x number of units. 

Assume you purchased 100 units of a scheme with a NAV of Rs 10 on July 22, 2021. If you sell it on July 22, 2022, when the NAV is Rs 15, you will make Rs 5 per unit. As a result, your total profit will be Rs 500. 

However, the NAV of the funds is not particularly important to investors. Many people use NAV as a basis for comparing schemes. However, unless the schemes are identical and the investment amount is consistent, it makes little difference. 

NAV's impact on fund performance 

Investors evaluate important factors such as a fund's expense ratio, fund manager expertise, and so on when selecting whether to purchase or redeem units in a ULIP fund scheme. However, changes in a scheme's net asset value are critical since they reveal how the underlying stocks and bonds have performed. 

When considering investing in ULIP, it's critical to understand NAV, or the scheme's per-unit pricing. Investors can obtain and redeem units of a fund based on this. Before making a decision, review the following guidance to learn what NAV is and how it relates to the performance of a plan. Before investing, consider additional considerations such as a fund manager's fee ratio and experience. 

You should invest in a fund with the lowest expense ratio and an experienced fund manager with a demonstrated track record of consistent performance. 

Please remember that ULIP investments are subject to market risks; thoroughly read all scheme-related materials before investing. 


IndiaFirst Life

Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 663 crore, is one of the country's youngest life insurance companies. Our key differentiators are our simple, easy-to-understand products that are fairly-priced and efficiently serviced.We offer a diversified suite of over 46 need-based products & Riders (as of 31st March 2022) catering to varied customer segments, leveraging multiple distribution capabilities and augmenting various investment options. In all, propositions under the categories of Protection, Assured Savings, Wealth, Pension, Health and Group Funds for Employee Liabilities form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and competitively priced with risk management being our core strength.

Showing 1 to 75 of 105 entries.