If you own an investment-linked policy, your statement has a number that changes: the fund value. It goes up, then down, then up. People often take a dip personally, so it helps to know what's moving.
Units, like slices
Think of a fund as a pie made of all the investments inside it. It's cut into equal slices called units. When you pay the investment part of your premium, you buy slices at that day's price.
That price is the unit price, sometimes called the net asset value per unit, or NAV.
Two numbers that matter
- Number of units you own. It changes when you pay premiums or when charges are taken out.
- Unit price. It changes with the value of what's inside the fund.
Fund value = number of units × unit price.
If the unit price rises, your fund value rises with it, even though you've done nothing. If it falls, so does the fund value. That is the nature of an investment-linked product, as opposed to a guaranteed one.
What moves the price
The fund holds assets such as stocks, bonds or a mix. When those assets rise or fall in value, the unit price follows. Different funds hold different mixes, which is why a bond fund and an equity fund behave differently.
A higher-risk fund has the potential for bigger gains and for bigger drops. A lower-risk fund tends to move less in both directions.
Where the charges show up
Charges on these products are often taken by cancelling units, not by sending you a bill. That's why your number of units can decrease even while you keep paying. Look for the charge schedule in your contract: the early years can carry heavier charges than later ones, and that affects what builds up.
Reading your statement
Look for four things:
1. The fund you're in, and whether it matches your risk comfort. 2. The unit price and the date it was set. 3. The number of units and how it changed since the last statement. 4. The charges taken in the period.
Three habits
Don't judge a fund by one month. Prices move. The question is whether the choice fits your time horizon.
Don't confuse fund value with protection. The protection amount, the sum assured, is a separate figure. A dip in fund value doesn't change what the policy pays on a claim, but check whether your policy's cover depends on having enough fund value to pay the charges.
Ask about fund switching. Many policies let you move between funds. Find out how often, and at what cost.
The one-line version
Fund value is units times price. You control how many units you buy and how long you stay. You don't control the price, so choose a fund whose swings you can live with.
The free Life Ready Checklist at lifereadywithvenus.com has a page for writing these down, free and with no sign-up.
