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How is CAGR Calculated in ULIP

To determine the compound annual growth rate of your investment in ULIP over time, use a Compound Annual Growth Rate (CAGR) calculator.

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Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

CAGR means compound annual growth rate. ULIP investments provide excellent returns; nonetheless, it is critical to keep a careful eye on how your investment picks perform in terms of their market-linked returns.

For consumers who desire life insurance and long-term investment in one bundle, ULIPs are the most excellent option. The premiums for ULIPs are divided into two groups. Half of it is used to give life insurance policies to the insured, while the other half is utilized to invest in stocks in the market. The insurer collects funds from many investors and pools them into a single large fund to invest in the market.

ULIP returns are inextricably related to market performance, although there are a few different ways to classify and calculate ULIP gains or returns, as follows:

  • Absolute Return:
  • Total Return is the profit or loss earned by invested funds over a certain period, usually one year. It is a measurement of asset appreciation or depreciation. The net asset value of a unit-linked insurance plan is used to compute the absolute returns. The net asset value of an investment account is the capital value per unit, less the costs.

  • Compound Annual Growth Rate in ULIP:
  • CAGR is an investment’s average yearly growth rate over a specific time. The investment’s value is supposed to have multiplied over time. As a result, it can accurately depict the annual returns on investment.

    In this article, we’ll go over all you need to know about CAGR in ULIPs so you can calculate the actual value of your returns using the CAGR calculate formula.

    CAGR Calculator: The Basics

    A CAGR calculation helps calculate the compound annual growth rate in ULIP of your investment over time. To compute the CAGR, you’ll require essential values like the beginning investment amount, estimated ultimate investment amount, and time length.

    The CAGR calculator provides a CAGR calculate formula where you can enter the investment’s start and end values. You must also choose the number of years for which the investment will be made. The CAGR calculate will show you your investment’s yearly rate of increase. You can use the compound annual growth rate (CAGR) to evaluate the Return on investment to a standard.

    CAGR Example:

    Consider the initial (Net Asset Value) NAV to be ₹350; current ULIP NAV is ₹450. Hence, the absolute return will be 40% in a year.

    Parameter

    Value

    Initial NAV

    ₹350

    Current ULIP NAV

    ₹450

    Absolute returns

    40%

    CAGR Formula

    CAGR = [(Ending Value/Beginning Value) ^ (1/N)]-1

    To summarise, there are various methods for calculating your ULIP plan’s growth rate; nevertheless, accuracy is what matters and allows you to maximize your investment earnings. Therefore, Compound Annual Growth Rate is the best approach to receive precise figures that make a difference in how you make money on your investments since it is essential to use the efficient method.

    Benefits of Using CAGR in ULIP

    You can choose your investments wisely with the aid of the CAGR calculation. It helps you figure out the annual rate of return on your investment. Additionally, you can assess your investment decisions by using CAGR calculation to compare investment returns to a relevant point of comparison.

    Most of the time, people look at returns in absolute terms. Consider investing $1,000 over the course of three years in a certain mutual fund. The investment you made increased in value to 1,850 at the conclusion of the third year. Over the last three years, your fund has produced a return of 85% in absolute terms. You could say that at this time, your money has almost doubled.

    Here, let’s calculate the CAGR to understand its benefits.

    CAGR = [(1850/1000)^(1/3)] - 1

    OR

    CAGR = 23%

    In other words, during the past three years, your investment in the fund has generated an average return of 23% per year.

    In essence, CAGR calculation informs you of the compounded returns you receive annually, regardless of the fund’s specific annual performance.

    This is due to the fact that the growth of your investments varies from year to year. You might get strong returns in some years while seeing lower returns in other years. In actuality, it is also conceivable to experience a loss.

    CAGR gives you information on the yearly average returns that a fund has generated over a specific period of time. This rate of return is not accurate. Instead, it is a graphical representation of how much your investments would grow if they increased at the same pace each year.

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