There are various investment oppurtunities helping you to accumulate wealth over time. You have to be prudent enough to choose the basket offering you high returns for long term financial security.
Prior to investment, you need to consider the pros and cons of both ULIP and mutual funds.
In this context, let us have a look between the two options-
Considering the inflation rate, you need to identify the avenue where your investment can yield high returns catering to your needs of higher educations of your kids, managing the daughter' s marriage during appropriate time and purchasing a flate or a building upon your retirement. Hence you need to differentiate the two.
What are the mutual funds?
Mutual funds are one of the most popular options today. Mutual funds are managed by fund managers making investment decisions on behalf of the investors. They are various types such as equity linked, debt fund, index fund etc each having its unique charecterestics in terms of growth pattern.
What is ULIP?
ULIP is the latest financial product for the investors. Unit Linked Insurance Plan are the insurance policies that offer investors an insurance cover while generating returns based on investments on different avenues. ULIP investment in equity shares, debt instruments and bonds.
Difference between Mutual funds and ULIP-
At first glance, they look alike but they are not the same if you analyse deeply. The basic difference between the two portfolios are indicated below -
1) Return on Investment- The returns on the ULIP segment are on the lower side because of nature of fixed returns where as the the equity funds have the potential to offer high returns.
2) Lock in Period - ULIP has a lock in period ranging from three to five years depending upon the structure of the scheme. where as Lock - in - period of mutual fund scheme is generally one year.
3) Taxation Benifits- ULIP provides the oppurtunity of availing 80 C benifits of Income Tax 1961 where as mutual funds offer tax deduction only in ELSS
4) The charges of ULIP portfolio is comparatively higher than that of mutual funds.
5) Risk Cover - There is a better risk cover for ULIP than the one opted by Mutual- fund.
Ideally mutual funds are suitable when you consider the following avenues -
1) Short term or a Medium term Investment Horizon
2) Have a term Insurance Plan
3) Interested for high liquidity
4) High or medium Risk appetite
Considering your time horizon of investment( one year), in your case equity linked mutual funds would suit you best.