ULIP plans are investing your money into the equity market. It is the same like the mutual funds, but ULIPs are providing the life cover and also linked to the insurance policy.
What is Net Asset Value (NAV) of a policy?
NAV of a ULIP plan is nothing but the book value.
How NAV of ULIP is calculated?
NAV or ‘Net Asset Value’ is the value of the asset held by the insurance company after deducting the various charges like Admin Charges, Mortality Charges, Fund Management Fees etc.
NAV of a ULIP scheme also varies on a day-to-day basis. NAV of a particular ULIP scheme can be calculated using the formula mentioned below –
Net Asset Value (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)”
*NAV Calculation Formula as per IRDA
ABC Insurance Company has started a ULIP Plan. In this ULIP Plan – 100 people invest Rs 100 each in ULIP plan. After ULIP charges have been deducted, Rs 90 are left per person for investment. The Insurer will create unit funds of face value Rs 10 each and distribute it to all the investors. So all investors would get 90 units each. The insurer will create a portfolio of various shares and bonds for investment and will invest the total money in it. The amount i.e. Rs 9,000 is invested in distinct portfolio of that fund.
NAV at beginning= 9,000/100 = 90
After one month the equities market value has increased to 9,250
Now new NAV at the end of day = (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)
Assuming small growth, new NAV at end of day= 9,390 – 90/100= 93
And hence NAV per unit per person is Rs 93.
This value will increase or decrease along with the price of various equity or shares in which the money is invested. The updated NAV is constantly posted on the website of the insurer.