What Are Market Linked Returns in ULIPs?

If you are looking for a financial product offering insurance and investment benefits, you might have encountered a ULIP or Unit Linked Insurance Plan. ULIP is a hybrid product that allows you to pay a premium, get a life cover, and invest in various funds of your choice. But how do you earn returns from your ULIP investments? And what are the risks and rewards involved? Let’s answer these questions by explaining what market-linked returns are in ULIP and how they work.

What are market-linked returns in ULIP?

If you are wondering, what is ULIP market-linked returns, then they are the returns you earn from your ULIP investments that depend on the performance of the underlying assets or indices in which the ULIP funds are invested. For example, if you invest in an equity fund that tracks the Nifty 50 index, your returns will depend on how the Nifty 50 performs over time. Similarly, if you invest in a debt fund that invests in government securities, your returns will depend on the interest rates and the credit quality of the securities.

Unlike fixed-income products, such as traditional endowment plans or bank deposits, that offer a guaranteed or a fixed rate of return, market-linked returns are not assured. They are subject to market risks and volatility. That means your returns can be higher or lower than expected or projected, depending on the market conditions and the fund’s performance.

What are the advantages of market-linked returns in ULIP?

One of the main advantages of market-linked returns in ULIP is that they can offer higher returns than fixed-income products when the market performs well. This is because ULIPs allow you to invest in diversified funds, depending on your risk appetite and goals.

Equity funds invest in companies’ stocks and can generate high returns in the long term by capital appreciation and dividends. Debt schemes invest in bonds and other fixed-income instruments and can generate steady returns by interest income and capital gains. Balanced funds park your money in a mix of equity and debt and can offer a balance of growth and stability.

Another advantage of market-linked returns in ULIP is that they can provide tax benefits, as the maturity amount and the partial withdrawals are tax-exempt under Section 10(10D). That means you can enjoy the full benefit of your returns without paying any tax on them. However, to avail of this benefit, you must ensure that the sum assured is at least 10 times the annual premium and the premium does not exceed 10% of the sum assured.

What are the factors that affect market-linked returns in ULIP?

Various factors influence market-linked returns in ULIP. These are:

  • Fund type: The fund type is the type of fund that you choose to invest in. The fund type determines the risk-return profile of your investment, as different funds have different levels of risk and return potential. For example, equity funds have high risk and high return potential, while debt funds have low risk and low return potential. Balanced funds have moderate risk and moderate return potential.
  • Fund performance: The fund performance is measured by the fund returns, the fund value, the fund NAV, etc. The fund performance reflects how well the fund manager has managed the fund and how well the fund has performed in the market.
  • Fund allocation: The fund allocation is the allocation of your premium or your fund value among different funds, as per your choice. The fund allocation determines your portfolio’s diversification and optimisation, as different funds have different asset classes, sectors, and market capitalisations. Therefore, allocate your funds wisely and according to your risk appetite and goals. You can also use the auto-rebalancing feature, which automatically adjusts your fund allocation as per your chosen ratio to maintain your desired asset allocation.
  • Fund switching: It is switching your fund value from one fund to another, as per your choice. Fund switching allows you to change your fund allocation and take advantage of the market opportunities and the fund performance.
  • Investment horizon: The investment horizon is the duration you invest in ULIPs. The investment horizon affects the compounding and the averaging of your returns, as well as the impact of the charges and the market fluctuations.
  • Market conditions: The market conditions affect the prices of the assets or the values of the indices in which the ULIP funds are invested. Various factors, such as economic conditions, political events, business cycles, industry trends, company performance, etc, influence the market conditions.


Market-linked returns in ULIPs depend on the performance of underlying assets or indices. Unlike fixed-income products, they aren’t guaranteed, subject to market risks and volatility. The advantages include potential higher returns during market growth and tax benefits. Factors affecting returns include fund type, performance, allocation, switching, investment horizon, and market conditions. Careful consideration of these factors helps optimise ULIP investments based on risk appetite and financial goals.

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