What is the difference between ULIP and Mutual Fund

23 Nov

Difference between ULIP and Mutual Fund

Finheal
Mutual Fund
Tags: financial instruments, investment policies, mutual fund, ULIP
no comments

A ULIP or Unit Linked Insurance Plan is an insurance plan which carries an additional advantage of giving you market-linked returns. The premium compensated on a ULIP is separated into two portions; one that is owed towards risk cover and the other that is invested in a variety of types of funds like debt, equity, cash marketplace, financial instruments, etc. This part of the ULIP is alike to a mutual fund with there being dissimilarity in the charges levied and the tax rebates. Like a mutual fund, where fund managers spend your money in different sectors, still in ULIP’s, there are funded managers who invest your capital in diverse sectors and instruments.

A lot of citizens get turned off when faced with the view of investing in ULIP’s as they believe that Mutual Funds provide them better returns in the short and medium term. While this can be right, it is also true that ULIP’s can hold their own in the long-run over mutual funds.

1) Firstly, ULIP’s provide insurance cover which means that on the occasion of death of the Life Assured; the nominee are free to fund value of the Sum Assured, whichever is higher. This ensures peace of mind for the person as he knows that his family is covered and secure.

2) Secondly, switching between funds is permitted in a Unit Linked Insurance Plan which can be a decent advantage in falling markets. With this facility, you can maximize your fund allotment even when markets are not doing well.

3) Third, investing in Insurance products offers you tax rebates under section 80C, which is not accessible extensively in mutual funds.

4) Fourth, because of the charges connected with in the early hour’s withdrawals in a Unit Linked Insurance Plan, an individual is incentivized to wait invested for the long term which is bound to give better returns as compared to the short term gambles that he may or else obtain in the stock market.

5) Lastly, the returns that you take delivery of from a ULIP are tax-free.

However, ULIP’s are badly sold as pure tax-free investment policies. Agents wrongly sell it to their gullible clients in tax season by saying that they can withdraw the amount after remaining invested for 3 years. This is a fallacy since in the first three years, the charges are maximum and yields minimum. In ULIP’s ,the overall charge arrangement comes down considerably over the long-term ,allowing better and better distribution of premium to your selected fund, thus assisting in wealth formation. Therefore, it’s significant that one stays invested in a ULIP for 10-15 years or even longer. The longer one stays invested in ULIP’s; the better would be the return on investment.

Share this Post

About the Author

Finheal

Persnal Loans in Cities

Home Loans in Cities

Business Loans in Cities

Car Loans in Cities

LAP in Cities

Mutual Fund in Cities

Credit Card in Cities