Last Updated on May 24, 2019 by Gopal Gidwani
First things first. Before purchasing a Unit Linked Insurance Plan (ULIP), it is of utmost importance to understand the terms and technicalities pertaining to the ULIP Policy. One such technical term that a majority of investors fail to understand is the Net Asset Value (NAV) of a ULIP Product. While investors might know the working of a ULIP Plan, they tend to ignore the basics of ULIP NAV. So if you’re wondering what is a NAV, go through this guide that will help you to understand the concept better. Take a look:
What is Net Asset Value (NAV) in a ULIP Policy?
Under a ULIP Policy, the net asset value is the total value of a unit’s holdings of allowable expenses. In order to calculate the NAVs, you have to add the ULIP holdings of a particular day less from all the liabilities like the management fees, operating expenses, and so forth. Typically, these NAVs represent the value of all the holdings. It can be divided by the number of units that an investor holds and, thereby, represent the NAV as (NAV/unit).
Let’s understand these ULIP NAVs with the help of an example. For instance, a ULIP fund has a total holding of Rs. 11 Lakhs. Considering all the deductions, the related expenses will be Rs. 1 Lakh. Now, your current NAV will be Rs. 10 Lakhs (11,00,000-1,00,000).
What are the factors that affect ULIP NAV?
There are certain factors that determine the rate of NAVs. Here’s a better look at the factors that majorly affect the net asset value of a ULIP Policy. Go through these mentioned below carefully in order to make informed decisions.
Application date
Ideally, the calculation of the net asset value is done based on the date of application. A closing NAV is applicable only when a valid application is received for a surrender, maturity claim or switch on a given date before 1500 hours. However, after 1500 hours, a closing NAV is applicable on the next business day.
What are the misconceptions pertaining to ULIP NAV?
One of the most common myths about NAVs is that the higher the NAV, the higher the price. Due to their expensive nature, a majority of investors tend to skip their opportunities for investments. They will either settle for a lower NAV or not invest in a ULIP Policy, at all.
On the other hand, higher NAVs are not necessarily expensive. Since they are the face value of the ULIPs post the deduction, they represent a fair price of the assets. These ULIP NAVs are neither inflated not misrepresentative. Whether the NAVs are higher or lower, do not base your decision solely on its price.
Now that you know everything about ULIP NAVs, what are you waiting for? Investment in a ULIP with a proper understanding of all the concepts in order to make a wiser decision on investment.
Since the NAV is the difference between assets and liabilities, any entity that deals with these two terms should mandatorily know NAVs thoroughly. Moreover, a majority of fund investors evaluate the ULIP performance of their policies based on the NAV differentials amongst two dates. Therefore, as an investor see to it that you don’t invest in a ULIP Policy blindly without knowing the answer to ‘What is ULIP?, and ‘What is NAV?’