Unit Linked Insurance Plans (ULIPs) are investment-cum-insurance tools that provide policyholders with the dual benefit of investment and insurance under one ULIP plan. ULIPs provide investors with the flexibility to choose their investment options and the potential to earn returns on their investments. Rolling returns are an essential aspect of ULIPs that determine the performance of the plan over a given period. In this article, we will examine the concept of rolling returns in ULIPs and how it impacts the policyholders.
The ULIP calculator is a simple and easy-to-use tool that you can use to predict the return that you can avail of at maturity by entering a few details
There are two approaches to assessing the performance of mutual funds, and they are as follows.
- Trailing returns
- Rolling Returns
The results produced over a specific period are known as trailing returns. The year-to-date (YTD), one-year, three years, and so forth are all possible. Additionally known as point-to-point returns, these are. The most appropriate metrics to assess a mutual fund’s performance are its trailing returns.
You can observe a great 10-year performance with trailing returns but a poor one-year or five-year performance. The share price movement over a recent period and any dividends received per share over time are added to determine returns.
Characteristics Of Trailing Returns
Most pertinent – Mutual funds use this to publish performance over several time blocks:
- For a block of time, historical data is employed.
- Data is easily available at all times.
Technically speaking, rolling returns are the average annualised returns that are taken over a specified time period on a daily, weekly, or monthly basis through the final day of the period. It periodically assesses the fund’s relative and absolute performance over a period of time. For instance: Various times in between periods: Returns every three months between 2010 and 2015 or every six months between 2008 and 2018.
Rolling returns examine the performance of the fund over multiple blocks of three, five, or ten years at varied intervals, which makes this return more representative of the fund’s actual performance. Since it takes into account both upward and downward market movements across various time frames, the return consistency of the fund over the period may be examined.
For instance, if your investment horizon is three years and you want to see the rolling returns of a mutual fund scheme from January 1, 2006, to January 1, 2016, you would first calculate the annualised return from January 1, 2006, to January 1, 2009 (change in NAV between January 1, 2006, and January 1, 2009, annualised). Next, determine the annualised return from January 1, 2006, to December 31, 2009, and so on.
Rolling Returns’ Benefits
- A useful tool for assessing the performance of mutual funds
- Not favouring any certain era
- Gives a potential investor the right insights
- Suitable for regular investors (monthly or quarterly) or SIP participants.
- Used to calculate the mutual fund’s mean return
A fund’s long-term performance will be shown by its trailing return. However, it is challenging to infer from this data how consistent the fund was during good and poor times, influencing the return on an investor’s investment in percentage terms.
Unlike trailing returns that measure the performance of a fund from a specific date to the present, rolling returns provide a more comprehensive view of a fund’s performance over multiple time periods. This can help investors identify patterns and trends that may not be immediately apparent when they observe trailing returns.
One of the main benefits of rolling returns is that they provide a more accurate picture of a fund’s consistency and performance. By looking at the fund’s returns over multiple time periods, investors can get a better sense of how the fund has performed during different market conditions.
Rolling returns are an essential aspect of ULIPs, which determine the performance of the plan over a given period. It is a powerful tool that gives investors a clear picture of the returns they can expect from their ULIP investments. Investors must understand the concept of rolling returns and analyse the historical data to make informed decisions about their ULIP investments. Therefore, it is crucial for policyholders to consider the rolling returns of a ULIP plan before investing in it. With the right knowledge and understanding, investors can make smart decisions and maximise their returns on ULIP investments.
To calculate your sum assured that is expected, utilise the ULIP calculator.