Find your suitable insurance plan
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7 min read
Updated on Mar 03, 2023
Like Mutual funds, ULIPs are market-linked investment plans that allow the insured to earn high returns. ULIPs help the policyholder to build a corpus over a long term period. However there are features that separate benefits of ULIPs over other investments like Mutual Funds in many ways.
When it comes to investment policies that support the policyholder in creating wealth over long tenure, there are a range of options in the market to choose from. However, if you consider your choices one by one, you would realize that ULIPs and Mutual Funds are the two most superior investment plans that allow greater returns than their peers in the same category.
But, it is always advisable to take the decision of buying an investment plan after serious analysis with a cool mind without any hurry. This is because it is simply not possible to make an investment decision in a haste. Moreover, considering the returns on particular plans is also essential. Further, there are other factors to take note of like tax deductions, risk factors and plan flexibility etc. to consider. After taking into consideration all such points, one can finally come to the conclusion to invest in a policy that would allow best returns and maximum benefits.
Let us now consider some benefits of ULIPs over mutual funds which differentiate them from one another.
| Factors | ULIPs | Mutual Funds |
| Suits first time investors | The ULIP plans allow the insured to choose from a given list of funds depending on the risk appetite of the insured. | For starters. Investment in Mutual funds might be difficult to understand and invest in. Mutual funds involve a vexing task of distinguishing between investment caps (small, large and mid) and the investor needs to choose between caps to earn good returns. One wrong decision and you may lose all your savings |
| Disciplined investment | It is important for everyone to inculcate the habit of disciplined savings. By investing in a ULIP, people can help enhance this habit. This is because ULIPs come with a five year lock-in period, which means that the insured cannot touch the invested amount for five years. This way ULIPs help in instilling a certain amount of discipline in the investment. Further, the lock-in period in ULIP is calculated from policy issue date, which is an added benefit | On the other hand, mutual funds allow higher degree of liquidity options enabling the investor to withdraw money anytime. And thus, there is not much scope of disciplined savings in Mutual Funds |
| Joint benefits | A huge advantage of ULIP is that it allows dual benefits of investment and insurance. Hence, ULIP allows the insured double advantage of life cover and investment. So, if the insured dies in an unfortunate incident, the nominee receives death benefit to secure the family in the absence of the policyholder | Mutual funds, on the other hand, are pure investment products and allow no benefit of insurance
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| Saves tax | Tax deduction is a feature that is available in both ULIPs and some types of Mutual Funds. Under ULIP tax benefit, the insured can claim tax deduction on the money that is invested on paying premiums every year. The Section 80C of the income tax act allows INR 1, 50,000 as the maximum to be deducted as tax benefit | Similarly, Equity Linked Savings Schemes or ELSS mutual funds also qualify for deduction from your taxable income under Section 80C of the Income Tax Act 1961 |
| Flexibility in Choice of Funds | When it comes to flexibility in terms of choice and switching funds, ULIP allows the most convenient features. This makes it easy for the first time investors in choosing investment as per their risk appetite | When it comes to the capping in Mutual funds, it is very easy for even an experienced investor to get confused in deciding if they want a large, mid or small cap as per their financial requirements and risk appetite. Moreover, if the decision is not taken wisely it might lead to losses. |
| Extra Layer of Protection | Additional riders like accidental benefit riders or critical illness riders make it possible to provide added cover to the insured under an ULIP plan. Further, the partial withdrawal feature of ULIP and loyalty bonus at maturity are other features that give ULIP an edge | Mutual Funds and other investment plans may not provide such facility |
Suits well for first time investors – Investment is a difficult subject that many find hard to comprehend. Hence, some such people stay away from investment plans. However, one has to make his/her first move someday. If you are just starting your investment journey, it might be difficult to jump on mutual funds as you may not know much about it. Mutual funds involve a vexing task of distinguishing between investment caps (small, large and mid cap) and to choose the cap that would support in earning good returns. One wrong decision and you may lose all your savings. On the other hand, ULIP plan benefits allow the insured to choose from a given choice of funds depending on the risk appetite of the insured.
Allow a disciplined investment – It is important to inculcate the habit of disciplined savings for everyone. By investing in a ULIP, people can help enhance this habit for the better. This is because ULIPs come with a five year lock-in period, which means that the insured cannot touch the invested amount for five years. This way ULIPs help in instilling a certain amount of discipline in the investment. Further, the lock-in period in ULIP is calculated from policy issue date, which is an added benefit. On the other hand, mutual funds allow higher degree of liquidity options enabling the investor to withdraw money anytime. And thus, there is not much scope of disciplined savings in Mutual Funds.
Allow joint benefits of investment and insurance – This is another huge advantage in case of ULIP as compared to mutual funds that ULIPs allow dual benefits of investment and insurance. Hence, ULIP allows the insured double advantage of life cover and investment. So, if the insured dies in an unfortunate incident, the nominee receives death benefit to secure the family in the absence of the policyholder. However, Mutual funds are pure investment products and allow no facility of insurance.
Let you save tax – Tax deduction is another good advantage of ULIP. Under the ULIP tax benefit, the insured gets facilitated to claim tax deduction on the money that is invested on paying premiums every year. The Section 80C of the income tax act allows INR 1, 50,000 at the maximum to be deducted, whereas the ULIP top up tax benefit on maturity amount also comes under tax deduction slab under Section 10(10D).
Allow flexibility in the choice of funds – When it comes to flexibility in terms of choice of fund and switching of fund, ULIP allows the most convenient features. This makes it easy for the first time investors in choosing investment as per their risk appetite. As such when it comes to the capping in Mutual funds, it is very easy for even an experienced investor to get confused in deciding if they want a large, mid or small cap as per their financial requirements and risk appetite. Moreover, if the decision is not taken wisely it might lead to losses.
Support the insured with an extra layer of protection – By adding riders like accidental benefit riders or even a critical illness rider, it is possible to provide added cover to the insured under a ULIP plan. Further, the partial withdrawal feature of ULIP and loyalty bonus at maturity are other features that give ULIP an edge over other investment plans like Mutual Funds.
Read More: ULIP Vs Term Life Insurance: Their Key Features and Major Differences
The disciplined approach of ULIP rewards the investor on and off with a certain payout. This added advantage enhances the value of your fund and makes you happy. Further, ULIPs support the investor to realize their long term objectives and also make sure that the dependents of the investor are protected through the tenure of the policy.
However, when it comes to investment, it is very crucial to be cautious and take one step at a time. You need to do proper research and compare plans to come to a conclusion about the policy that you want to choose for your investment purpose. Start your investment journey only when you are sure about your plans and know about the outcome.
Also read: Best Term Life Insurance Policy of Cover Over Rs. 50,000 | Best Life Insurance in India
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ULIPs provide the flexibility of premium payment. You have the option to move your money between equity and debt funds. ULIPs allow you to withdraw a part of your money whenever you need it. You can also choose where to invest, depending on your risk appetite.
ULIPs come with a built-in life insurance cover. So, in addition to investment returns and tax benefits, ULIPs also offer life insurance coverage. This makes ULIPs a triple benefit financial product. On the other hand, Mutual Funds are purely an investment product and have no insurance built into them.
ULIPs make a suitable investment option for individuals looking for long-term wealth creation and insurance cover. The maturity amount can be used for children's education, marriage, retirement, and other financial goals. Under a single plan, you get dual benefits of insurance protection and savings.
It offers the dual benefit of insurance as well as investment. In addition to that, it offers high returns on investment. *All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply.
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PayBima Team
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.
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