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Experts advise opting for life insurance along with long-term wealth generation assets. It ensures your funds stay invested in the market, even in case of an unexpected incident, thus securing your family’s long-term financial goals. As new investors seek balanced returns, ULIP returns in 5 years can help build confidence, particularly owing to the inclusion of life cover. ...Read More
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Written bySumit Narula
Investment Writer
Published 26th February 2026
Reviewed byPrateek Pandey
Last Modified 26th February 2026
Investment Expert
What is a 5-year ULIP Policy?
A 5-year ULIP combines life insurance and market-linked investment valid for a period of five years. It endows you with the dual benefit of security through life cover and growth through investment in market-linked assets.
Such plans come with a 5-year lock-in period, which makes them ideal for individuals who seek disciplined investments to achieve life goals like building an education fund for children, making a downpayment for new home, etc.
You can explore ULIP plans by Axis Max Life Insurance in detail below
How a ULIP Policy for 5 Years Works?
A 5-year ULIP policy works through the following key aspects:
Allocation of Your Funds
As the premium of a 5-year ULIP plan is distributed between insurance and investment, you can choose equity, debt, or hybrid funds to invest your assets.
Performance of the Fund
ULIP returns depend on market fluctuations. Therefore, carefully monitor the performance of your ULIP fund. You can track fund performance and NAV regularly to determine whether your investment decisions are favourable. If not, you should consider fund switching.
Premium Payment
When you invest in a ULIP, you have the option to pay the premiums periodically or as a lump sum as per your preference and funds available at hand. The premium you pay is allocated to life insurance and market-linked investment.
Lock-in Period
ULIPs have a 5-year lock-in period, which makes them a great investment instrument to build funds for future. ULIP investments make you a disciplined investor, as you cannot make partial withdrawals.
Flexibility
With ULIPs, you get the flexibility to switch between different funds depending on your risk appetite or market conditions. This flexibility ensures the chance of optimised returns at the end of the lock-in period.
Maturity and Withdrawals
Once the 5-year lock-in period is over, you can either withdraw the funds and continue with the insurance coverage. Such plans are great for individuals looking to hold their ULIPs for a period longer than the short term (3 years) but not as long as the medium term (10 to 15 years).
Understanding ULIP Returns Over the Last 5 Years
ULIP returns in last 5 years refer to your fund’s yield during the five-year lock-in period. Now, investing in a ULIP for 5 years may seem like a simple plan, but several factors influence your actual returns. These factors include market performance, fund type, such as equity, debt, or balanced, and applicable charges.
The annual returns from a ULIP over 5 years typically range from 8% to 12%. To track the value of your ULIP investments over the 5-year lock-in period, consider reviewing the periodic statements released by the insurer. These statements contain essential details like the NAV, the ULIP fund’s value and more, which help you assess the progress of your investment over time.
Furthermore, you can compare ULIP returns with market indices like Sensex or NIFTY over a 5-year period to assess the relative performance.
Key Factors Affecting ULIP Returns for 5 Years
Multiple interconnected parameters work together to determine the ULIP returns in 5 years. The following are 3 key factors:
Market Conditions and Fund Selection
The performance of a ULIP is directly linked to the market conditions. A well-performing market ensures faster growth of the fund value, thus offering enhanced maturity benefits. However, when market downturns occur, the returns may fall temporarily.
Fund selection is equally important, as it influences your plan’s performance. You can go for equity funds for higher growth potential, but you need to stay prepared for their high volatility. On the other hand, debt and balanced funds offer moderate returns but come with better stability than equity funds.
Fund selection is equally important, as it influences your plan’s performance. You can go for equity funds for higher growth potential, but you need to stay prepared for their high volatility. On the other hand, debt and balanced funds offer moderate returns but come with better stability than equity funds.
Charges Influencing ULIP Returns
Certain deductions in a ULIP affect your final returns. Some common charges are fund management fees, premium allocation charges, mortality charges, and policy administration costs.
Switching Funds
To enhance ULIP returns growth, you can switch between equity, debt, and hybrid funds, depending on the market conditions. This feature allows you to minimise the risk by opting for strategic switching during volatile periods and achieve higher returns when the market performs well, without influencing their life cover.
Common Mistakes to Avoid in Money Management
No matter how wise sound planning you have, small financial mistakes can ruin your finances. Overspending, not saving, or taking up unnecessary debt are some such errors, which, if avoided, will help you make wiser and more reliable financial decisions.
Let’s quickly understand some of the common mistakes below:
Ignoring Small Expenses
Minor expenses like daily snacks, subscriptions, or online impulse buying may seem insignificant, yet they add up to quite a sum. Failing to recognise these “money leaks” can silently deplete your savings and jeopardise your overall budget.
Not Having an Emergency Fund
The consequence of not maintaining an emergency fund is that a health problem or a job loss can dismantle your entire funds and savings. You may need to borrow money or use up savings set aside for other important purposes.
Overspending on Credit
Indiscriminate use of credit cards or loans can mount up rapidly due to interest charges, and your overall debt may become unmanageable. If you continue to spend more than you can repay on time, you will face financial difficulties that affect your future savings.
ULIP vs Other Investment Options: A 5-Year Comparison
The table below explains the ULIP return comparison over 5 years with other major investment assets:
| Parameters | ULIP | Mutual Funds | Fixed Deposits |
|---|---|---|---|
| Structure | It combines market-linked investments and life cover. A part of your premium goes to insurance coverage and the remaining to investment. | It is an investment product where your money is pooled into diversified equity, debt or hybrid assets. The funds are managed by professional AMCs without any insurance coverage. | They provide guaranteed returns on principal through fixed interest rates for a decided tenure, offering no market linkage or insurance. |
| Returns Over 5 Years | You can expect approximately 8-12% annual returns after deducting charges. Returns are influenced by market performance. | Historically, mutual funds have been seen to provide average returns of more than 12% over a 5-year period. However, this completely depends on market conditions. | Fixed deposits guarantee stable returns of 6-7.5% regardless of market conditions. |
| Risk Level | It has medium-to-high market risk. Insurance cover and fund switching options usually mitigate the risks to a certain extent. | Mutual funds expose investors to medium-high risk, depending on the invested scheme, market risk, etc. | Fixed deposits feature low risk with full principal protection and no exposure to market fluctuations. |
| Lock-In Period | ULIPs come with a mandatory 5-year lock-in period, withlimited free switches between insurer-ap | Mutual funds provide high liquidity with anytime redemptions, except for ELSS's 3-year lock-in. This allows flexible withdrawals across schemes. | Fixed deposits allow high liquidity after the tenure is over. In case of early withdrawals, you need to pay penalties. |
| Flexibility | ULIP allows investors to switch between funds, but the choices are limited. | Mutual funds allow wide access to diverse fund categories like large-cap, sectoral, or debt, enabling free redeem-and-reinvest strategies. | Fixed deposits offer no fund flexibility, as returns are fixed without investment choices |
| Tax Benefits | ULIPs qualify for tax deductions of up to ₹1.5 lakh on premiums under Section 80C of the Income Tax Act. Deductions are also available on tax-free maturity or death benefits under Section 10(10D), subject to conditions. | Mutual funds offer tax benefits only for ELSS schemes. With others, the gains are taxed under long- and short-term capital gains. | Tax deductions are only available for tax-saving FDs up to ₹1.5 lakh per financial year under Section 80C. Interest earned from FDs is taxable as per the individual’s applicable tax slab. |
Disclaimer: Section 80C is applicable under the old tax regime only. Return rates mentioned in the table above are averages and may differ based on market conditions.
Combine ULIPs with other investment plans for financial growth for a balanced portfolio.
How to Choose the Right ULIP Plan for 5 Years?
While your decision to choose a ULIP should solely be based on your long-term goals, consider your risk appetite as well. Here are some key points to keep in mind when selecting one of the best ULIP returns over 5 years:
- Select a plan that offers multiple fund options.
- Make sure the sum assured is sufficient to cover your family’s financial needs when you are not around.
- Outline your investment goals carefully while taking into account retirement planning, your child’s education, life goals, etc.
- Assess your age, income level, total financial assets, and the number of dependents you support to understand your risk-taking appetite.
- Check various ULIP charges applicable
Remember that a carefully selected ULIP can yield great returns and so turn out to be your best ULIP investment.
Why Choose a 5 Year ULIP Policy in 2026?
Here are some of the reasons why you should choose a 5-year ULIP policy:
Short-term Investment
ULIPs provide a balance between risk and returns, making them suitable for investors who want to gain higher returns within a short period of 5 years.
Flexibility
While buying ULIPs, policyholders can decide the amount and the type of funds they want to invest in based on their risk appetite. Besides, they can switch between funds during a policy term in response to market fluctuations.
Life Coverage
If the policyholder suddenly passes away during the 5-year ULIP term, the nominee can claim either the sum assured amount or the fund value, depending on which is higher.
Wealth Creation Potential
With ULIPs, you can maximise your investment returns along with continued life cover by making consistent premium payments, timely fund switching, and prudent fund selection.
Liquidity Options
Once the lock-in period of 5 years is over, you can continue with the insurance policy and make partial withdrawals to meet short-term needs, such as planned expenses or emergencies.
How are 5-year ULIP Returns Calculated?
The returns from a ULIP depend on market conditions and fund choices. Here are some factors that affect the calculation of ULIP returns in 5 years:
NAV (Net Asset Value)
The per-unit value of a ULIP is represented by the net asset value, or NAV. Any fluctuations in the net asset value directly influence the investment returns of the ULIP.
You can calculate the NAV of a ULIP fund by using the following formula:
NAV = (Total Assets - Total Liabilities)/Total Outstanding Units
To calculate the 5-year returns of a ULIP using the NAV, do the following:
I .Calculate the Initial NAV and Current NAV.
II. Use the formula: Absolute Return = ((Selling price – Purchase price) / Purchase price) * 100
Example:
Suppose your chosen ULIP has the option to invest in the XYZ Equity Fund, and you wish to determine its 5-year returns using the NAV. The fund’s NAV in January 2021 was ₹110 per unit and in January 2026, the NAV is ₹226 per unit.
Hence, applying the formula:
Absolute Return = ((Selling price – Purchase price) / Purchase price) * 100
Absolute Return = ((₹226 - ₹110)/110) * 100 = 105.45%
You can calculate the NAV of a ULIP fund by using the following formula:
NAV = (Total Assets - Total Liabilities)/Total Outstanding Units
To calculate the 5-year returns of a ULIP using the NAV, do the following:
I .Calculate the Initial NAV and Current NAV.
II. Use the formula: Absolute Return = ((Selling price – Purchase price) / Purchase price) * 100
Example:
Suppose your chosen ULIP has the option to invest in the XYZ Equity Fund, and you wish to determine its 5-year returns using the NAV. The fund’s NAV in January 2021 was ₹110 per unit and in January 2026, the NAV is ₹226 per unit.
Hence, applying the formula:
Absolute Return = ((Selling price – Purchase price) / Purchase price) * 100
Absolute Return = ((₹226 - ₹110)/110) * 100 = 105.45%
Five-Year Returns
Return value after the period of five years depends on the performance of the fund and market trends. For competitive returns, focus on better fund management.
You can calculate the approximate 5-year returns of your ULIP by using the CAGR formula:
CAGR = {[(Current value/Initial Value) ^ (1/number of years)] - 1} x 100
Here, the current value is the maturity value of the units after 5 years, and the initial value is the value of the fund units at the time of purchase.
You can calculate the approximate 5-year returns of your ULIP by using the CAGR formula:
CAGR = {[(Current value/Initial Value) ^ (1/number of years)] - 1} x 100
Here, the current value is the maturity value of the units after 5 years, and the initial value is the value of the fund units at the time of purchase.
Investment in Units
A part of the premium you pay is used to buy mutual fund units, and the returns that you get depend on the changes in NAV. The number of fund units allocated for you depends on the NAV when you invest in the ULIP.
Annualised Returns
The ULIP performance can be compared with that of other investments by calculating the compound annual growth rate (CAGR). Investors can estimate their returns by using a ULIP calculator to calculate CAGR.
Influence of the Charges
There are different ULIP charges, such as mortality costs, fund management, etc. These can influence the returns from your ULIP investments.
Market Influence
Apart from all these factors, market conditions also influence the performance of your fund, thus influencing the ULIP returns in 5 years.
Common Mistakes to Avoid When Investing in ULIPs
Here are some of the common mistakes that you make while investing in a ULIP. Knowing these mistakes will help you avoid them and maximise your ULIP return:
- Ignoring your risk appetite
- Assuming guaranteed returns
- Overlooking fund switching options
- Ignoring the charges of ULIP
- Premature discontinuation of the premium before the lock-in ends
ULIP returns in 5 years can benefit you with short-term financial goals. However, there are several factors that influence the returns from your ULIP. So, you should consider them and avoid the common mistakes discussed above to ensure better returns.
To make informed decisions, you can use a ULIP calculator so that your ULIP returns align with your future financial goals.
FAQs about ULIP Returns in 5 Years
What are ULIP returns over 5 years?
The returns from a ULIP are never fixed. It depends on the type of fund you choose and the market performance. Usually, equity funds offer better returns, but market fluctuations can influence them.
How do I calculate ULIP returns?
Consider several factors, including annualised returns, charges, and market fluctuations, while calculating ULIP returns. You can use NAV-based calculation methods to calculate investment growth over time.
Can ULIP returns vary in 5 years?
The returns from ULIP can vary over a period of five years. This is because market conditions and your choice of funds influence ULIP returns.
What is the best way to track ULIP performance?
You can monitor the NAV every week and review the fund allocation on a regular basis. This will help you track and understand the ULIP performance.
Are ULIP returns guaranteed over 5 years?
Returns from ULIP plans are market-linked and not guaranteed. These returns fluctuate depending on market conditions and fund performance.
What is the lock-in period for a ULIP investment?
ULIPs come with a mandatory lock-in period of 5 years.
Can I withdraw from ULIP after 5 years?
Yes. You can opt for partial withdrawals from the ULIP fund after the 5-year lock-in period to meet your short-term financial needs.
Can I withdraw my ULIP investment before 5 years?
No. You cannot withdraw your ULIP investment before the 5-year lock-in period ends.
What happens to my ULIP investment after 5 years?
After 5 years, you can continue investing in the ULIP fund. You can also switch to other funds or withdraw the amount partially.
What is the typical range of ULIP returns over 5 years?
The typical range of ULIP returns over 5 years is usually medium to high. It depends on the performance of the debt or equity fund in which you have invested.
Can I expect high returns from a 5-year ULIP?
Yes. Investment in equity funds can provide higher returns from your 5-year ULIP. However, this is not guaranteed, as market fluctuations can affect the performance of equity funds.
How do ULIP returns compare to traditional insurance plans?
You can expect higher returns from ULIPs than from traditional insurance plans. This is because traditional insurance does not involve investment in funds; it only provides insurance cover.
Can I switch between funds during the 5-year ULIP investment?
Investors can switch funds in a ULIP depending on the market conditions to enhance their investment returns.
ARN: Feb26/Bg/17SN1
Sources:
https://www.indiatoday.in/business/personal-finance/story/ulips-mutual-funds-or-stocks-what-is-the-best-for-long-term-wealth-creation-2721078-2025-05-07
https://www.moneycontrol.com/news/business/personal-finance/heres-how-you-can-measure-your-ulip-returns-while-reviewing-investments-2922861.html
https://www.motilaloswalmf.com/investor-education/blog/absolute-return-in-mutual-funds-meaning-formula-calculation-procedure/#:~:text=The%20formula%20for%20calculating%20absolute,to%20calculate%20the%20annualized%20returns
https://www.moneycontrol.com/banking/gst-on-insurance-policyholders-have-a-lot-to-know-post-gst-2-0-here-s-why-article-13533078.html
https://www.indiatoday.in/business/personal-finance/story/ulips-mutual-funds-or-stocks-what-is-the-best-for-long-term-wealth-creation-2721078-2025-05-07
https://www.moneycontrol.com/news/business/personal-finance/heres-how-you-can-measure-your-ulip-returns-while-reviewing-investments-2922861.html
https://www.motilaloswalmf.com/investor-education/blog/absolute-return-in-mutual-funds-meaning-formula-calculation-procedure/#:~:text=The%20formula%20for%20calculating%20absolute,to%20calculate%20the%20annualized%20returns
https://www.moneycontrol.com/banking/gst-on-insurance-policyholders-have-a-lot-to-know-post-gst-2-0-here-s-why-article-13533078.html
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