💡 ULIP Returns: Why What You See Isn’t What You Get!

 


ULIP Returns: Why What You See Isn’t What You Get!

Last week, a school friend messaged me,
"I saw this ULIP plan — they’re showing 18% to 26% returns! Should I invest?"

I said, "No, please don’t."
She instantly replied, "Why not?"

👉 That’s when I realized — many investors don’t know what happens behind the scenes in ULIPs.

So I crunched the numbers, ran a 15-year simulation, and here's what I found — shared in plain English, with real calculations and a clear warning. 🚨

📌 First, What is a ULIP?

ULIP stands for Unit Linked Insurance Plan.
It’s a 2-in-1 product that combines:

  1. Life insurance

  2. Investment in market-linked funds

Sounds smart, right? But there’s a catch: the charges.

🧾 Charges That Eat Your Returns

ULIPs come with a host of charges. Here are the common ones:

Charge Type What It Means
Premium Allocation Charge (PAC) Deducted upfront from your premium
Policy Admin Charges Monthly deductions to maintain the policy
Mortality Charges Cost of providing insurance
Fund Management Charges Annual charges for managing your money
Other Charges Switching fees, partial withdrawal fees, rider charges, etc.

⚠️ Disclaimer: Charges used in the example below are reference rates taken from multiple ULIPs in the market and may vary from product to product.

📊 A 20-Year Case Study: ULIP vs Mutual Fund

Let’s say you invest ₹50,000 per year for 20 years in a ULIP.
We assumed gross fund return of 15% in both ULIP and mutual fund.
Now, look at the actual outcome after applying all ULIP charges:



👉 That’s ₹16+ lakhs difference — on the same investment, with the same market return!

So while ULIP shows a return of 15%, what you actually get is just over 10% after charges.
Meanwhile, a simple mutual fund SIP earns you 13.49%.

📉 Why This Huge Gap?

Let’s break down what happens in ULIP:

  • Year 1: You invest ₹50,000. But only ₹43,125 gets invested after charges.

  • Ongoing: Every year, mortality + admin + fund management charges continue to chip away at your returns.

  • Hidden Pain: Charges like mortality increase as you grow older — at age 54, it’s nearly ₹2,895 per year just for mortality!

So you’re losing:

  • ₹6,000 in PAC in year 1

  • ₹579 in fund charges

  • ₹670 in mortality

    That’s ₹7,249 gone before your money even starts growing!

❌ Should You Invest in ULIPs?

Here’s the harsh truth:

✅ If you want insurance → buy a term plan
✅ If you want investment → go for mutual funds or ETFs
🚫 If you want to combine both in one product → you may end up compromising both

ULIP may look like a “smart combo”, but in reality, you pay extra and get less.

🧠 Final Thought

Returns shown in ULIP ads (like 18% to 26%) are often gross fund performance — not net returns after charges.

Always ask:
“What will I actually get in hand?”
Because in the end, only net returns matter — not flashy brochures.

💬 If you or someone you know is considering a ULIP, share this post. You could save them lakhs.

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