ULIP vs Mutual Fund
A very prevalent issue of which tool is superior among customers-ULIPs or Mutual Funds (MFs). Let's first comprehend these two economic tools before you begin thinking about which tool to invest.
ULIPs - Unit Linked Insurance Plans
Popularly recognized as "ULIPs," insurance companies offer an equity alternative. It is a single agreement that includes an equity profit insurance cover. The insurance company allocates funds to ULIP shareholders and the regular calculation and declaration of the net asset value (NAV). An investment in ULIP is split into two components-a) Premium Life Cover b) Investment. Premium paid in ULIP, some is for life cover and the rest is for investment.
Mutual Fund is an investment tool that pools money from various distinct investors and invests that in stocks, bonds, money market instruments. The company allocates units to MF investors and calculates the current value of such investments daily and declares the same through the Net Asset Value.
Difference between ULIPs and Mutual Funds
The fundamental difference between ULIP and MF is insurance coverage. A ULIP offers a part of insurance whereas an MF is a sheer result of an investment. ULIPs are generally mutual funds with an insurance cover.
ULIP= Mutual fund + Insurance cover
Now, after knowing the distinction between ULIP and MF, let's see in detail which purchase choice is superior-ULIP or MF.
Comparing ULIP Plans vs Mutual Funds
Expenditures – Expenditures incurred in an MF are lower than ULIPs expenditures. The reason is that costs are capped in a mutual fund, there is a pre-set upper limit, whereas the insurance firm does not define an upper limit for ULIPs in terms of managing costs.
Tax advantages - Investments that are done in ULIP qualifies for tax benefits on maximum investment amount of Rs. 1,00,000 lakh under Section 80C of the Income Tax Act whereas in Mutual Funds, only investments made in ELSS qualifies for the tax benefits under Section 80C.
Disclosure of the portfolio — Mutual Fund companies are needed to register their portfolios every week, but ULIPs do not have such legislative demands.
Return on Investment-As both products are long-term investment products, these products have provided their investors with excellent yields. Feels many analysts, ULIP provides a better return than MF from a long-term view. However, in all cases this is not true, it all depends on the type of investment and the ability of the fund manager to manage the funds.
Choosing ULIP or Mutual Funds
Mutual fund investment is better than ULIPs, considering all the above factors.
Insurance is intended to protect you in the future and will take care of future uncertainties. An MF has intended for investment alone, though. Since we investors don't have the knowledge to invest in the stock market and other financial instruments, this can be done through MFs.
However, the finest choice accessible to any investor is low-cost term insurance and a good equity mutual fund.