ULIPs Vs Mutual Funds|Bankbazaarinsurance
- Reduce taxable income by up to Rs. 1,50,000 deduction under section 80C**
- Convenient payment options - annual, half-yearly, quarterly or monthly premium payments
- Do more with plans that offer pure protection, retirement planning and investment options
Unit Linked Insurance Plans or ULIPs and Mutual Funds are two very different entities that you can come across. While the former is an insurance product which also dabbles in investing a part of your money in various market instruments, mutual funds are pure investment tools which aim to invest your money and help you maximise your savings.
For example, if you are in your early 20s or 30s and want a tool keeping in mind your long-term goals, where you can not only provide a protective cover to you or your family but also invest your money in different tools so that it can maximise over a period of time then it is recommended that you purchase a ULIP for yourself.
If you are an individual who is only looking to invest in a tool so that you can see your savings grow, then a mutual fund is an ideal product to avail. You can invest in a mutual fund depending on your goals which can be either short term, medium term or long-term in nature.
It is extremely important that before availing either of the two products, you are extremely clear regarding your financial requirements and future goals.
So, how are ULIPs different from Mutual Funds? We find out below.
Difference between ULIP and Mutual Fund
| Comparison | ULIP | Mutual Fund |
| Purpose | Aims to not only provide you with a protective cover but also invest your savings in various market tools in order to maximise your money. | Mutual funds are pure investment tools which aim to maximise your savings by investing in various market instruments. |
| Objective | To provide protective cover as well as maximise your savings for a long term. | Maximise your savings keeping in mind your short term, medium term or long-term goals. |
| Returns | Returns can be variable depending on market performance. Hence the returns can be low or high. | Returns can be variable in nature. |
| When to consider buying the plan | If you want to be provided cover as well as see your money grow, keeping in mind your long-term goals. | If you only want to invest in a market tool depending on your short term, medium term or long-term goals. |
| Flexibility | Flexible in nature. You can decide the percentage of the amount you would like to keep aside for investing and the rest that would be your insurance coverage. | You can choose to invest in different MFs of your choice. |
| Regulatory body | IRDAI | SEBI |
| SIP | SIP is available | SIP is available |
| Security | There is no security | There is no security |
| Ideal Term | Long Term | Can be short term, medium term or long term depending on your financial goals. |
| Liquidity | Not very liquid in nature. | Since your money is invested in various market instruments, liquidity is high. |
| Switching Options | You can switch from one fund to another depending on the market performance. | You have the option of switching from one fund to another. |
| Tax benefits | Tax benefits are available under Section 80C of the Income Tax Act,1961. | Tax benefits are available under ELSS of Section 80C under the Income Tax Act,1961. |
| Additional benefits | Additional benefits are provided in form of maturity benefit and death benefit. | No additional benefits are provided. |
| Lock-in period | Lock-in period of 3 years to 5 years. | There is no lock-in period. |
| Expense | Since there is no limit set by IRDAI, the expenses to manage a ULIP fund are generally high. | There are certain limits set by SEBI, hence the expenses to manage a mutual fund are low. |
| How is your money utilised | The premium payment is used to provide you with insurance cover, invest your money in different market tools and other expenses. | The premium paid is used for investing in market tools and other expenses. |
| Investment Portfolio | Difficult to keep track of your investment portfolio. Only if the insurer is declaring its holdings can you the track your portfolio. | You can track your investment portfolio as it is declared on a quarterly basis. |
Which one is better?
As mentioned earlier, ULIPs and Mutual Funds are two separate entities and which product you choose to avail will depend completely on your financial goals and future plans.
If you are looking to protect your loved ones and secure their future as well as have some returns on your savings, it is highly recommended that you purchase a ULIP. These plans are helpful keeping in mind your long-term goals and not only provide you with a protective cover but also maximise your money.
In case you have already availed an insurance plan which is providing you with a protective cover for a long period of time, and you are looking for a tool where you can see your investment grow keeping in mind your short term, medium term or long-term goals in mind, then it is advisable for you to invest your savings in a mutual fund.
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