Factors to Consider When Choosing Between ULIP and Mutual Funds

950

Investing in the future is an important headache to have. While there are quite a few instruments to opt for, nothing is as popular as ULIP and Mutual Funds. Having been made more prevalent by the Millennials, both these plans often seem identical to novice investors when they are not.

Online Internship with Certification

Important Announcement – EasyShiksha has now started Online Internship Program “Ab India Sikhega Ghar Se

How EasyShiksha Internship/Training Program Works
How EasyShiksha Internship/Training Program Works

In the subsequent sections, we shall compare ULIPs and Mutual Funds, based on the factors of importance. However, before proceeding any further, it is important to gain a brief perspective of a ULIP and a mutual fund, as standalone investment instruments.

What is a ULIP?

Unit Linked Insurance Plan (ULIP) doesn’t exactly sound like a good investment plan. However, as the latest financial product, it comes with several advantages, including decent returns, tax benefits, and a balanced portfolio, comprising bonds, debt instruments, and even equity shares.

Top Courses in Computer Science Engineering

Top Courses in Software Engineering

Loading...

More Courses With Certification

More about Mutual Funds

A mutual fund requires no introduction. In simpler terms, it is more of a comprehensive trust, segregated further into debt and equity financial instruments.

Factors to consider while selecting the Preferred Investment Instrument

Having a good knowledge of personal finance is quite important for selecting a good investment instrument. And, the discussion about ULIP vs. Mutual Fund hinges on several factors, which include –

ROI

ULIPs aren’t persuasive enough if generating returns is your primary objective. As a ULIP also secures your well-being with a camouflaged insurance plan, the returns often suffer. Mutual funds, on the other hand, promise higher returns. Also, the size of the probable returns seems bigger for equity-driven funds as compared to specific debt-based mutual funds.

Empower your team. Lead the industry

Get a subscription to a library of online courses and digital learning tools for your organization with EasyShiksha

Request Now
Frequently Asked Questions

Transparency

Mutual funds are quite open regarding the portfolio-specific charges, appreciation rates, and even the way the invested funds are faring. While even a ULIP tries to be transparent, being a mix of an investment strategy and a risk-based fund doesn’t exactly summon openness regarding asset allocation and underlying expenses.

Lock-Ins

As ULIPs are more like insurance products, the lock-in periods are slightly rigid. A standard ULIP lock-in period is anywhere between 3 years to 5 years. Mutual funds can be liquidated only after a year, barring the likes of ELSS that need to be invested in for a minimum of three years.

Tax Benefits

If you are planning to invest with tax benefits in mind, ULIPs are better bets. Once invested, you can claim deductions amounting to 1.5 lakhs per year, as per Section 80C. However, mutual funds only offer similar perks if ELSS is the investment instrument in play.

Risk Cover

Mutual funds are devoid of risk covers as they are only focused on offering higher liquidity. ULIPs, on the other hand, are comprehensive plans with an integrated insurance plan to serve you right. However, the risk cover for the same depends on the premium value that you are willing to pay.

Also Read : The Satirical Art of Stating

Finally, ULIPs have no fixed charges and expense ratio attached to them, making them better choices as long-term investment strategies.

Final Words

In conclusion, the choice of the investment plan depends on your preferred time frame, tax-saving inclinations, risk appetite, and more. However, ULIP seems like a more balanced investment strategy, especially for the new investors and if you are one, purchasing the most appropriate ULIP from a good insurer is the way to go.

For information related to technology, visit HawksCode and EasyShiksha

ALSO READ: year-ender-and-learnings-of-2021-from-business-leaders

Get Course: Learn-HTML-Tutorial-for-Beginners

Download this article as PDF to read offline: