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ULIP vs Mutual Funds

ULIP vs Mutual Funds

ULIP vs Mutual Funds

Investing in the stock market can be a bit tricky especially if you are not really aware of how the market functions and short-term volatility could erode your investment. To counter these situations, it becomes important to choose a safer investment. Mutual Funds and Unit-Linked Investment Plans are two of the major investment avenues which could help you grow your wealth in the long run by taking fewer risks.


Apart from having the benefits of Selecting Stocks For Long-Term Investment, both these financial instruments have varied natures and characteristics that differentiate them from each other. Therefore, investors, before investing in such alternatives, should understand and assess the pros and cons of these instruments and invest in them according to their requirements.



What is ULIP?

ULIP’s full form is Unit-Linked Insurance Plan, and it is a financial product that comprises of two parts: One is the investment portion, that’s where the phrase “Unit Linked” comes from and the second is the Insurance portion. ULIP is a unique instrument providing the benefits of insurance cover and an investment vehicle under a single umbrella.  


In simple terms, ULIP means a portion of your premium goes into insurance whereas the other portion of the premium is invested in stocks, bonds and other investment vehicles.  


To put it together, ULIP is a combination of Investment, Insurance, and Tax saving that combines together to form a formidable triple benefit story that insurance agents can pitch to policy holders. But before buying a ULIP policy, you need to take care of the ULIP charges such as mortality charges, premium allocation charges, fund management charges, and administration charges.



Advantages of ULIP

You must be thinking that when I can buy an insurance policy and do investment separately, then why should I invest in ULIP. So before making up your mind, you should understand the benefits the advantages of ULIPs.


1). ULIP is an effective instrument for investors to create long-term wealth and at the same time provides the benefits of insurance.

2). It helps in achieving the long-term financial goals such as saving for children’s marriage of further education as the lock-in period under this scheme is 5 years.

3). This scheme offers some wonderful tax benefits on the total investment.



What is Mutual Funds?

A mutual fund is a pool of money collected from various investors formed into a trust which is managed by asset management companies. The financial experts managing these financial instruments invest these funds in various sources such as stocks, bonds, gold, and other various assets.  


Get to know in detail about SIP Vs Mutual Fund.



How to invest in mutual funds?

It is a safer form of investment especially for those with little or no knowledge of the stock market as experienced fund managers invest on behalf of those who don’t have adequate knowledge of how the stock market functions and in returns, they charge a commission fee.


You must buy units of mutual funds and could start from as low as Rs.500 per month in a pool of money which the manager will further invest in diversified assets.  



Benefits of Mutual Funds


1). Investing in mutual funds helps you benefit from diversification and minimize your risk by spreading your investment in various asset classes such as stocks, bonds, gold.

2). For those who don’t have prior knowledge of stock market gets the assistance of financial experts for their investment.

3). Tax-saving mutual funds have a three-year lock-in period.  



Difference between ULIP and Mutual Funds

Both Mutual funds and ULIPs are safer investment vehicles and are used for wealth creation in the long run but both have different characteristics and cater to the needs of different kinds of investors. Let’s understand the basics difference between them to have a better understanding.  


Particulars Mutual funds ULIP
Type of Product Mutual funds are financial instruments which pool money from various investors and invest them in different classes of assets such as stocks, bonds, gold. ULIP is a unique instrument providing the benefits of insurance cover and an investment vehicle under a single umbrella.
Objectives The main objective of mutual funds in is to create long-term for those who don't have prior knowledge of the stock market. ULIPs are mainly insurance products that also provide the investors with investment benefits under a single scheme.
Tax Benefits You do not get much tax benefits on your gains under mutual funds. Under the ULIP scheme, you get some wonderful tax benefits on your total investments under Section 80C.
Built-in Insurance Mutual funds are solely for investment purposes with the aim to create wealth in the long-term. Apart from acting as an investment vehicle and providing tax benefits ULIP also gives you the benefit of an insurance scheme.
Risk Elimination Mutual funds do not provide any insurance cover and there is a market associated with the investments made in mutual funds. Under the ULIP scheme, the policyholders get the benefits of both insurance and investment, therefore in the case of death of the policyholder, it provides certain degree of cover to the family of the policyholders.
Lock-in Period Generally, there is no lock-in period in mutual funds and investors can redeem their investments anytime except ELSS. As ULIP provides insurance cover, there is a lock-in period of at least 5 years and before the end of 5 years, policyholders cannot redeem their investments.




Both financial instruments have their own pros and cons, therefore you should keep in mind whether it suits your financial aspirations or not because mutual funds are for those who do not have prior knowledge of the stock market and want to create wealth for the future. On the other hand, ULIPs primarily present themselves as insurance products that provide investment benefits. Because of its long-term wealth creation capabilities, it becomes perfect financial instrument by which government employees can invest in the share market. Also, so it becomes important to assess your requirements before choosing a particular investment option.  

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