There is similarity between mutual funds and ULIPs (Unit-linked Insurance Plans). Both will participate in the equity market indirectly with the help of professional fund managers. Hence, the basic purpose of the investment is to reap gains from the market. However, the financial goals of mutual funds are different from the goals of ULIPs. While ULIP protects the life and delivers monetary gains, mutual fund will deliver the financial goals on short-term as well as long-term basis.
LTCG (Long-Term Capital Gains)
With the introduction of LTCG on equity gains in the budget, 2018 the prominence of ULIPs has increased. When you compare ulip vs mutual fund returns, the returns ob
tained from ULIP on a long-term will be higher than mutual fund. You should stay invested for at least 15 to 20 years to reap the benefits from the ULIP investment.
ULIP investment option
ULIP investment options are available to fulfill your health insurance, children’s education and retirement plans. There are various kinds of plans which can be selected as per your needs.
A part of the ULIP premium will cover the risk and the remaining part will be invested in equity funds. The investor can exercise the option to choose funds as the level of risk. If the risk is high, the returns will be high.
ULIPs have delivered best returns in the large-cap and mid-cap category. If you stay invested for at least 3 years in ULIP, you will reap benefit.
If you choose balanced funds, the mutual funds have outperformed ULIPs. Mutual funds fared better than ULIPs in the short-term bond category. The expense ratio in debt funds will be low and the returns will be high.
While tax-saving mutual funds are available with 3-year lock-in period, the lock-in period of ULIPs is 5 years. If you cancel the plan before 5 years, there will be great loss.
The liquidity offered by mutual fund is very high. You can buy funds on any working day and they can be sold as per your convenience. The amount will be credited into your back account through ECS or cheque as per the option exercised with the fund house.
Benefits of ULIPs
- Insurance or life cover is the essential aspect of ULIP
- Offers transparency
- Greater flexibility to switch over to various funds
- Triple tax benefit
- Insurance cover – ULIP offers insurance cover along-with good returns. It is possible to increase the cover as per the type of policy.
- Triple tax benefit – There is exemption of income tax on the principal amount invested in the unit-linked insurance plan. The exemption is applicable under Section 80C up to Rs. 1.5 lakh in a financial year. The maturity amount is tax-free under Section 10 (10D). Thus, there is no tax on the principal as well as the returns.
- Fulfills your financial goals – You can choose ULIP to fulfill your financial goal in a very efficient manner. If you buy an education policy, the children’s education will be fulfilled in spite of your absence. The retirement policy will help you build the corpus for your retirement in the best possible way.
- Transparency – The fund status and expenses involved in the management of fund can be obtained from the insurance company. The growth of the fund can be noticed through the online resources.
- Flexibility – You can switch over from one type of fund to another type of funds in a seamless manner. It is possible to invest in various kinds of funds as per your risk appetite. Hence, you can exercise complete control on the investment.
- Professional management – Your funds are managed experienced professionals. There will not be risk to the capital and you will get decent returns by being committed to the plan.
- Loyalty bonus – As you associate with the insurance company, you will get loyalty bonus.
Benefits of mutual funds
- Will not cover the health or life risk
- Transparent financial product
- Income tax is exempted on specific products only
- Tax-saving funds will come with 3-year lock-in period
- LTCG and STCG are applicable
- Facilitates SIP mode of investment
- Short-term funds – There are short-term funds which can deliver better returns than the interest amount gained through the bank’s savings deposits.
- Long-term funds – If you invest for more than 3-years in tax-saving mutual funds, there will be exemption on the principal as well as the returns. The returns are exempted from tax up to Rs. 1 lakh in a financial year.
- Diverse financial products – There are diverse financial products designed to fulfill the needs of various categories of customers. The schemes can be chosen as per the risk appetite, age and investment horizon. You can choose a plan for wealth creation, capital appreciation, children’s education and retirement benefit.
- SIP – Systematic Investment Plan (SIP) is the most convenience and profitable way of investment in mutual funds. There will be least burden on the investor in contributing the money. There are SIPs which can be paid on monthly, quarterly basis. You can invest in stock market in a disciplined manner by using SIP.
- Online subscription – There is no complexity in investing in mutual funds. You can invest directly by registering on the mutual fund house’s website. As you go for direct investment, you can reduce the expense ratio and the growth of fund will be high.
The investor should explore various options and should choose the best financial product to fulfill his short-term and long-terms goals. There are better options with ULIP as well as SIP in fulfilling the short-term and long-term financial needs.
The returns from ULIPs and Mutual Funds will be mostly similar. The ULIP has the insurance prospect as well while the mutual fund is meant for capital appreciation. There are various kinds of mutual fund schemes as well as unit-linked plans. You should choose the best financial product as per the financial goals, risk appetite, age and tenure. You should compare various products and the best investment option should be exercised to fulfill your short-term as well as long-term needs.