We come across quite a few queries regarding the difference between ULIP and mutual fund comparison for generating returns and meeting your goals.
Choosing between ULIPs and Mutual Funds can be critical depending on your goals. The nature of both products is vastly different and they serve different purposes altogether.
Let’s find out the distinction between ULIP VS Mutual Fund.
A mutual fund is one of the best investment options and easily available to anybody.
Mutual funds are suitable when
Unit-Linked Insurance Plans (ULIP) are insurance policies that offer investors an insurance cover along with a way to invest. They differentiate themselves from other normal insurance policies by offering greater returns by investing in various asset classes.
While it might seem like a better proposition, however, it has its flaws.
This brings us to the difference between investment goals and insurance goals. The primary purpose of insurance should be met with an insurance product and not from an investment product.
ULIPs is a scheme presented by insurance companies, in a similar manner to what a mutual fund does.
Investment and insurance are different objectives. It’s better to keep them separated. For investment purpose, invest in best investment plans like mutual funds. or for insurance purpose buy a pure insurance plan rather than an insurance cum investment plan.
Let’s understand the difference between Mutual Fund and ULIP on the basis of their features
ULIP is an insurance product which gives life cover and also generates returns by investing in shares, bonds, or other money market instruments.
Mutual funds, on the other hand, are pure investment products with the sole purpose of generating returns. Hence, there is no question of life cover.
Section 80C of the Income Tax Act up to a limit of 1.5 lakh.are one of the best tax saving investment options in India. ELSS mutual funds help you save taxes under
Many people ask about ULIP vs SIP for best tax saving option. SIP is a better way to invest in the ELSS mutual funds for tax saving purpose.
In ULIPs, the premium amount paid towards the plan up to rupees 1.5 Lakh helps to save tax under Section 80C of the Income Tax Act. Further, in case of a claim, the sum assured paid to the nominee would also be tax-free under section 10(10D) of the Income Tax Act.
ULIPs generally have a lock-in period of 5 years
Most mutual fund schemes, on the other hand, are totally liquid giving you the freedom to enter and exit as per your investment plans.
In case of death of a policyholder, ULIPs compensate family members with the amount of sum assured.
But in the case of a mutual fund, the mutual fund investment is transferred to the nominee. Mutual funds are pure investment plans and provide no insurance cover.
Compared to ULIPs, mutual funds are relatively transparent about the fees charged and the portfolio holdings.
Mutual funds are a better investment option having lower expenses up to 2.5%. Whereas in case of ULIPs they can be much higher than mutual funds.
Mutual funds are a better investment product when you have multiple goals, long term as well as short term, to invest towards.
On the other hand, investing in ULIP is not necessary in most cases, because insurance and investment are two different objectives and should not be clubbed.
There is no winner between apple and oranges as both of them have very different utilities.
If you happen to decide between a ULIP Plan and a Mutual Fund scheme for investment, be crystal clear about what you want to achieve from the money. This you can do by asking yourself the following questions.
Exercise due care and pick the best option while taking investment decisions.
You would also like to check difference between mutual funds and stocks
Taxation on mutual funds is a complex topic. Taxes paid on your mutual fund investments vastly depend on factors such as what kind of funds you have invested in, the duration of your investment, which income tax slab you belong to and so on.