The difference between Mutual Fund and ULIPs


ULIP is also popular like mutual funds among investors as it offers twin benefits to them.

Many people attracted to ULIP because of its twin benefits, returns as well as insurance cover.

People search for various ways to invest their hard-earned money to grow quickly to fulfill their different financial objectives. But in reality, there is no such option that offers quick gains. In India, there are plenty of investment options available like mutual funds, National Savings certificates, Fixed Deposit, and Life Insurance Policy. Mutual funds are always a preferred investment choice for the people in India. Like Mutual funds, Unit Linked Insurance Plans (ULIP) also gaining popularity among people in the country these days. Since both the mutual fund and ULIP are market-linked products, investors often confused about which one is better to invest.  Read this article to get a better understanding of the difference between the Mutual Fund and ULIPs.

Mutual Funds

Mutual funds are the most popular and most common investment choice in India because of its potential to offer higher returns in the long run. In this option, resources accumulate from different investors and invest that money again in various assets for higher returns. A professional fund manager manages the money that you invested in a mutual fund, and he or she charges a fee for that service.

Unit-Linked Insurance Plans

ULIP is also popular like mutual funds among investors as it offers twin benefits to them. This investment choice is a combination of both life insurance and investment. A part of the money invested in ULIP uses for the insurance coverage of investors, and the rest invests in different assets like stocks and bonds. It also has a similar structure and function as that of mutual funds. Like mutual funds, a professional fund manager takes care of your investment on your behalf in collaboration with a life insurance company. If you choose ULIP to invest your money, you are eligible for both life risk cover and capital appreciation.

Difference between mutual fund and ULIP

ULIPMutual Fund
Provides insurance coverDo not provide insurance cover
Usually comes with high entry load and it varies with different schemesSmall entry load (Maximum of2.5%)
Come with a maturity period of 5 to 20 years and the money you invest will be locked-in until three years.Mutual funds do not have a lock-in period except in Equity-linked Savings Scheme which has a lock-in period of 3 years
The compulsion of investing in ULIPs. Your money will be losing if you do not pay at least three premiums.No compulsion of investing in mutual funds. Investors also have the option to invest in some other scheme if the fund you choose does not give good returns.
ULIP investments come under Section 80C of the Income Tax Act and you can save tax by investing in it. Returns from both investments are tax-free in ULIP.Investors need to choose a tax-saving mutual fund to get the tax benefit. It has a lock-in period of at least 3 years.
Redeemed on maturing. You need to pay a penalty in case of premature redemption.In Equity-Linked Investment Scheme, premature redemption is not allowed, but you can redeem in any open-ended MF scheme.

Why mutual funds are better investment option than ULIPs

By explaining the merits of both these investment options, it may be difficult for an investor to choose the best one that is more advantageous. But mutual funds are the best investment option for many reasons. Many people attracted to ULIP because of its twin benefits, returns as well as insurance cover. However, an investor does not get sufficient insurance coverage by investing in ULIP, and most of them end up underinsured. Unlike mutual funds, many hidden charges also involved with ULIP that ultimately leads to lower returns. If you look for insurance coverage and high returns, invest in mutual funds and buy a term insurance policy separately rather than opting for ULIP. You can also keep monitoring the performance of your mutual fund scheme, and if it does not perform well, you can switch it to another plan.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh