ULIP vs Mutual Funds – Choosing the Absolute Winner!

‘Do not mix insurance and investment.’ We often get this advice. Even, most of us swear by it, isn’t it?

While Mutual funds have their own pros and cons, what every potential investor agonises over is making the best choice among the different investment options. And, of course, with choices come details, and details come with debates of choosing the absolute winner.

One such debate is ULIP vs Mutual Funds!

Some investment pundits, via their blogs and newspaper columns, usually recommend mutual funds over ULIPs. While others say that for those seeking a policy that gives triple benefits of insurance, investment and tax benefits, Unite-Linked Insurance Plan is a fitting solution.

While both these investment options have their own set of pros and cons, Mutual Fund is always backed by investment pundits.

But, is it wise to put all the eggs in one basket?

Of course, this might confuse you.

We’ll advice, in order to make a sound and fruitful investment, it is important to analyse each and every aspect of the investment option with a fine-toothed comb.

So as to make the choice even easier, here’s a comparison of ULIPs and Mutual Funds. All being well, this will make sense of the contradictory opinions of investment gurus.

However, what does history suggest on the relative returns of ULIPs and Mutual Funds?

Well, there’s no exact comparison.

Let’s dive into some data here to make it clear:

Unit-Linked Insurance Plans (ULIPs) – How tempting are they?

Don’t get muddled with ULIPs and mutual funds. Why?

Because they have some similarities; however, they’re totally different financial products. Unit-linked Insurance Plan is strategic and unique investment plan that is a mix of investments and life insurance.

ULIPs are often taken into account as they’re the investment plans that are too good to be true. Switching funds, investment flexibility, and potentially higher returns, is some of the USP’s of this investment option.

Moreover, you get additional protection with ULIPs via inbuilt benefits or riders. Such ULIP investments aid the investors who’re looking for some specific needs. Along with this, ULIP investments also allow tax deductions under Section 80C of the Income Tax Act, 1961.

Mutual Funds – What makes them enticing?

Usually, when you think of investing your hard-earned money, the most ‘spur-on-the-moment’ response is a mutual fund. Why?

Well, the answer is clear. Mutual fund investments are the oldest and the most common choice of the investors.

But, how does it work?

Here’s how:

Investor (You) – you, as an investor, invests money in mutual funds that runs with the help of a reliable fund manager.

A fund manager – Fund managers collect funds from several investors just like you.

Mutual Fund Investment – The fund managers, after collecting the money from different investors, invest in well-evaluated and researched based plans to earn returns.

Now, there are different options in mutual funds too. You can ask your fund manager to invest your money in equity funds, debt funds, liquidity funds, hybrid funds, money-market funds, tax-saving (ELSS) schemes, and more, depending on your risk appetite and your preferences.

Difference between ULIPs and Mutual Funds

Now that you’ve gone through the basics of ULIP vs Mutual Funds, let’s see a gist of the differences between ULIPs and Mutual Funds:

ULIP vs Mutual Funds: Which one is a better option?

Well, it depends.

On what?

It is based on your risk appetite, dependents, needs, preferences, and so on.

Ask these questions to yourself:

Do you have any financially dependents members of your family?

What’s your risk appetite – high, medium, or low?

What’s your financial objective – wish to save money, wish for immediate returns, seeking financial help for your loved ones, or tax saving?

Do you possess a life cover?

How long you wish to stay invested – long-term or short-term?

To cut the crap:

When to Choose ULIP?

• When you’re up for a long-term investment.
• When you wish a life cover as well as investment to offer fiscal aid to your loved ones in the event of unforeseen and unfortunate events.
• When you wish to have a fiscal vehicle to aid you in saving taxes.
• When you have high, medium, or low risk appetite.

When to Choose MF?

• When you want your returns from investment in medium or short-term.
• When you have high, medium, or low risk appetite.
• When you wish your investment to be liquid (except ELSS).
• When you’re already have a term insurance policy to safeguard your family and loved ones financially.

ULIP vs Mutual Fund: Where should you invest?

Both, mutual funds and ULIPs are different investment instruments serving different purpose.

But, if you’re seeking for a systematic approach to have both investment and insurance at the same time, then you have two options to roll the ball in the right court:

Option #1: New Age ULIPs or Low Charges ULIP:

Way back in 2010, ULIP had really high charges. However, after 2010, with the introduction of 4G ULIPs, the premium allocation charges, the fund management charges, the policy administration charges, and the mortality charges, etc. have been narrowed down to a far lower percentage than it was earlier.

When you’re buying a ULIP plan online:

You save on various charges that include commission of the agents. There’re different small savings that turn out to be bigger savings overall that are passed on to the investors:

Premium Allocation Charges – Most of the providers have zero premium allocation charges.

Fund Management Charges – The FMCs are lowered to nil or to 1.35%.

Mortality Charges – These charges differ with age.

Policy Administration Charges – These charges are zero or lower than the previous ULIP version.

Let’s step down to:

Option #2: Mutual Funds along with Term Insurance:

One simple way to combat the positives of 4G ULIPs with low charges – offering investment and insurance together – that many financial gurus suggest is:

Invest money in mutual fund schemes – MF being a purely investment instrument giving high returns, and even in short span of time (sometimes).

To purchase a term insurance plan – A term plan is a purely insurance instrument offering high life coverage at reasonable rate of premium.

Our take!

By now, you’ve got to know that ULIP vs Mutual Funds is a big debate and comparing these two investment products is like comparing chalk and cheese. Although, both are investment products, they operate differently. Mutual funds are the most common investment options, while there has been a rise in the interest of investors in ULIPs in the recent past.

As their purposes, along with the benefits, are different, it won’t be wise to measure them by the same tape. If you’re still in disarray which is a better investment option – ULIP vs Mutual Funds, choose the one, which matches your needs and financial objectives.

Happy Investing!

DISCLAIMER: The views in this article does not endorse any product. These are personal views of the writer. Mutual Fund?investments are subject to market risks, read all scheme related documents carefully.?