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  • Category: Insurance

    Which is better option, ULIP or mutual fund ?


    Want to get some advice regarding an investment decision? Interested in knowing the main difference between ULIP or mutual fund? No worries, you will be able to make a good decision once you go through the advice provided by experts here.

    I am looking for investment options for Rs. 20,000 for the 1-year horizon. What could be the better options? ULIP or mutual fund based on equity? I am ready for the risk of a 5% loss in this investment. Can you give me suggestions regarding this investment decision?
  • Answers

    3 Answers found.
  • These two investment options appear similar in nature but there are some subtle differences between them which make them different in terms of the returns in these schemes. ULIP is a insurance linked scheme and the fund scheme generally would assure a fixed return from it. Sometimes market behave adversely but ULIP would pay the assured return to the investor to be managed by the accumulated funds in hand. But it would not be as good as in case of equity based Mutual Funds. Both the funds, ULIP and equity based Mutual Funds invest in the shares, bonds and debt instruments albeit in a different proportion and their risk perception is also different. Equity based Mutual Funds are riskier than the ULIP schemes.

    There are many factors which are to be kept in view before investing the money in these schemes. If one wants a safe return then ULIP is a good bet but in a rising market, equity based funds are definitely a better choice. They would give high returns especially the funds which were stagnant for quite some time in a dull market. So, a prudent investor who keeps a watch on the market trend would take an appropriate decision in this matter. Another factor is that ULIP schemes are generally have a lock in period of 3 years and you cannot get it repurchased before that time.

    Further the expenses by the fund house in Mutual Fund schemes are regaled by the Govt not to exceed 1.05% but in case of ULIP no such regulation is there and they are to that extent not transparent. Another thing is that ULIP investments are having tax deductions under 80C and in case of the unfortunate death of the policyholder, the family gets the sum assured. In case of Mutual fund (except tax benefit for ELSS schemes) there is no such benefit.

    As your investment horizon is only 1 year, keeping in view of above factors, you can very well go for equity based Mutual Fund schemes.

    Knowledge is power.

  • 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.

  • Mutual funds will be operated by fund managers. They will make the decision regarding investing your money in various instruments. There are many types of mutual funds. Equity-linked, debt fund, index fund are some examples for this.
    Unit Linked Insurance Plan is well known as ULIP. These will offer insurance coverage to the investors. The returns on investments will be based on the investment they made on behalf of you.

    The returns on investment will be more in must funds than on ULIP. But there is a fixed-guarantee in ULIP investments.

    The charges in ULIP are more than the charges in mutual funds.
    The risk cover is better in ULIP.
    Both the investments are having tax benefits.

    drrao
    always confident


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