ULIP: Unit Linked Insurance Plan
A ULIP plan – unit-linked insurance plan is a plan that combines two plans, a comprehensive insurance plan as well as an investment plan. The individual who takes up the plan will be the investor as well as the insurance policy holder and will get a return on investments and an insurance policy cover. The unit linked plan provides the benefits of 2 with the price of 1. The unit linked insurance plan has a high return on investments. The premiums that are paid for the insurance policy are invested into the funds so that the capital gains appreciation so that the insurance policyholder gets a return as well. So, the premiums are treated like the investment funds too. You do not have to pay separately for getting both the benefits which is a great added benefit.
Mutual Fund
A mutual fund is an investment plan and an opportunity to increase their capital wealth. Funds are collected from investors so that they can be put into fund companies and money market instruments. These funds are then invested into securities like bonds, stocks, market instruments related to money and other money making securities. There are certain people called investment managers who manage the mutual funds and they make sure that the funds by the investors are invested into funds that will help the capital appreciation and the investors get a good return on their investments.
Let’s see the ulip plans vs mutual funds scenario in more detail on the basis of their features:
| Unit Linked Insurance Plans | Mutual Funds |
| Types of the plan: Investment Plan + Insurance Plan |
Type of plan: Only Investment Plan |
| Fund management charges: 1.35 %, comparatively higher than mutual funds. |
Fund management charges: 2.5 %, comparatively lower than ULIPs. |
| Tax Deductions: For a ULIP, the Income Tax Act has put out an exemption under the Section 80 C that any amount paid under the ULIP as the investments will be exempted for taxation. |
Tax Deductions: The Income Tax Act of India only provides tax exemptions for mutual funds if the funds the money is invested into ELSS – Equity Linked Saving Scheme |
| Lock – in period: Minimum lock-in period is 5 years |
Lock in period: In mutual funds, one can withdraw their funds anytime within a year but except the funds which are invested in ELSS – Equity Linked Saving Scheme |
| Liquidity: Liquidity is limited because of the lock-in period |
Liquidity: Mutual funds have a high rate of liquidity |
| Life insurance cover: The ULIP plan provides the plan holder with a comprehensive insurance cover along with the investment plan |
Life insurance cover: When you invest into mutual funds, you do not get a life insurance policy cover, only an investment plan comes along your way. |
| The amount for investing: The sum amount for the investments can be decided by the investor or the policyholder itself. This amount is also allowed to be modified later in the tenure of the plan. |
The amount for investing: The minimum sum amount of the investment to be made by the investor is set by the fund company itself. To get the plan, the investor has to pay the minimum amount or any amount above its value. |
| Risk: The risk with investing into ULIP plans is comparatively less risky. |
Risk: The risk of investing into mutual funds is comparatively riskier because of the marketplace which is pretty unstable and might crash anytime or the money might lose its value. |
| Maturity: After the unit-linked insurance plan has matured, the plan ceases to exist, you are given your insurance policy cover and return on investments and you cannot stay invested into the plan after the maturity. |
Maturity: After the term of the mutual fund ends, you can still be invested in the fund. The mutual fund can stay on even after the maturity as you just have to be invested in the plan or the fund after that. |
| Return on investments: The return on investments is lower in the ULIP plans when compared, due to the reason that they have a potentially lower risk. You will not be losing any money as the insurance cover makes it less risky. |
Return on investments: The ROI is higher when the funds are invested into mutual funds. Especially if your money is invested in different and diversified funds, the returns could be even higher. |
ULIP plans vs Mutual Funds: Final Choice
Unit Linked Insurance Plan
- One of best reasons of taking up a ULIP plan instead of a mutual fund plan is that the unit-linked insurance plan will give you the benefits of 2 plans with the cost of one. It will put the premiums that you pay for the insurance cover into funds so that your premium capital also appreciates meanwhile, which is great.
- The risks with this are extremely low. So, if you aren’t much of a risk taker and want stability, choosing a ULIP plan would prove beneficial to you.
Mutual funds
- If you want to only focus on investing in funds which will give you a good return on investments and do not want to club investment and insurance, you should go for the mutual fund investments.
- If you want a higher return and want to feel like your money is actually growing in the funds, then mutual funds are probably the best bet as the returns of ULIP aren’t that high and they are mainly focused on the insurance cover part of the plan.
Now that you know the pros and cons of the plan and know about what kind of plans they are and what your preferences are and which kind of plan do you incline towards, it might be easier for you to make the decision. Choose wisely in accordance with requirements, wants, and goals.