4 min read
Updated on Jul 13, 2022
ULIP and Mutual Funds are two terms that we start hearing the moment we consider investing our hard-earned money. However, before you make any investment, you need to understand the meaning of these two first. Well, let us start with an example.
Akshay and Amit have been friends since their college days and both of them bagged their job in the same company. Now that they are financially independent, they are giving thoughts on some investment options. Akshay chose ULIP and invested INR 50,000; while Amit put his money in mutual funds.
Now, from the next month, a certain amount from Akshay’s salary is deducted as term cover. This cover provides him life insurance that is worth INR 5 lakhs. The difference is that in case of death of either of them, the family of Akshay will receive the term cover of INR 5 lakh, or at least the value of the invested fund, whichever is higher. However, Amit’s family will not receive the same.
Hopefully, this example will give us an idea of the basic difference between ULIP and mutual funds.
The full form of ULIP is Unit-Linked Insurance Policy. It is a life insurance policy that offers a combination of risk cover as well as investment. This can be called a unique offering that will enable you to avail the benefits of both assets and life insurance cover under one plan.
Also Read: 11 ULIP Charges You Should Be Aware Of
Mutual Fund is a pure investment product, which is a single financial trust. In this, money is pooled together from various investors in several market-linked funds so that a return is earned. Mutual Fund can invest in either or both equity and debt. In the financial market, it has been a popular investment option for long-term wealth creation. It is one of the most common options for investments today. There are several types of Mutual Funds that you can find in India, which include Debt Mutual Fund, Equity Mutual Fund, and many other types of funds.
The expenses that are covered include insurance premium allocation charges, mortality charges for life, fund management charge, and admin charges.
|Purpose||Insurance cover along with investment benefits.||Investment benefits.|
|Objective||Long-term plans that come with insurance and investment benefit.||Perfect for investment for the short to medium term.|
|Return on investment||The return is variable since it is linked to Equity. The return is low.||The return is flexible since it is linked to Equity. The return is higher as compared to the hybrid ones.|
|When should you consider||Consider ULIP if you want protection as well as better than nominal returns in long-term plans.||Consider Mutual Fund if you are looking for high returns over a period.|
|How your money is utilized||The premium that you pay for ULIP goes to the expenses, insurance cover, and equity mutual fund.||The premium that you pay goes to the expenses and stocks.|
|Flexibility||This plan is flexible as you can decide the proportion of the amount that you will invest and it will be used for insurance cover and the proportion that will go towards equity investment.||There is no flexibility as all the money that you are investing will be invested in equity.|
|Tax benefit||This is available under Section 80C.||Under ELSS of Section 80C.|
|Expense||The expenses to manage ULIP are high as there is no limit set by IRDA.||The costs to manage mutual funds are low since a particular limit is set by SEBI. The charges are for entry load, annual management charge, and exit load. In the majority of the cases, the entry and exit load is waived off.|
|Investment portfolio||The investment portfolio is unknown. Portfolio tracking is likely when the insurance provider declares its holdings.||The investment portfolio is declared quarterly.|
|Lock-in period||Minimum of 3 – 5 years||There is no lock-in period.|
|Security||No security||No security|
|Switching options||It will allow you to switch between the funds linked to the plan. You can change the risk return.||You cannot switch since there is no option available. The only option available is exiting the fund.|
|Additional benefits||Extra loyalty benefits are offered by issuing extra fund units.||There are no extra benefits.|
|Ideal term||Long term||Short to medium term|
|Liquidity||Not very liquid.||More liquid as it is more widely traded in the market.|
Let us check out which one is a better option – ULIP or Mutual Fund.
These are the basic differences that will help you to make up your mind and choose between ULIPs and Mutual Funds.
Also Read: Beginner’s Guide to ULIPs and Their Benefits
PayBima is an Indian insurance aggregator on a mission to make insurance simple for people. PayBima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. PayBima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
Table Of Content SBI Sukanya Samriddhi Yojana How Does SBI Sukanya Samriddhi Yojana Work? Key Features of Sukanya Yojana SBI Scheme Benefits of SBI Sukanya.
Table Of Content Why is it important to pay LIC premiums on time? What are the late payment charges of LIC premiums? Terms and Conditions.
Table of Content Sukanya Samriddhi Yojana (SSY) Features of Sukanya Samriddhi Yojana Benefits of Sukanya Samriddhi Yojana How to Open a SSY Account? LIC Kanyadan.
Table of Content What is a Retirement plan? Retirement Plan Importance How to Plan for retirement? Retirement is the time of life when you like.
Table of Content Tax Types Exemptions for Income Tax Due Date for Paying Income Tax Penalties for Not Paying Income Tax All about the different.
What are some money-saving ideas for Low Income Person in India If you have a low income with many expenses, you need to inculcate the.
Table Of Content Child Plans Single-Premium Child Investment Plan Regular-Premium Child Insurance Plan Difference Between Single-Premium and Regular-Premium Rupee Cost Averaging Visual Stories by PayBima.
Delving deeper into the old and new tax regimes for the Indian taxpayer, the income tax slabs under both the regimes, and the rates for.
Owing to the high popularity and demand of ULIP plans, investors are now keenly looking at the premium top-up feature of ULIPs to increase their.
Income tax payment becomes a tedious task, especially if you are paying late at the end of a financial year with the due date just.
Speak to our advisor
Corporate Office : Mahindra Insurance Brokers Ltd ( A Mahindra Group Company ) Sadhana House, Ground Floor, 570 P. B. Marg, Behind Mahindra Towers, Worli, Mumbai 400018.
Licenced by IRDAI License No. 261; License Validity : 17-05-2025; Category : Composite Broker; CIN : U65990MH1987PLCO42609 Member of Insurance Brokers Association of India (IBAI).
Insurance is the subject matter of solicitation.
For a seamless experience, use the latest version of Chrome/Firefox/Internet Explorer.
Copyright © 2022 Mahindra Insurance Brokers. All Right Reserved.