Tuesday, 17 March 2015

ULIPs vs Mutual Funds

Low-cost ULIPs have recently entered the market (2005) and brought in stiff competition for Mutual funds. 
       Between ULIPs and MFs, it is not about which one is better and where to invest. Rather your deciding factor should be what do you want and who you are. Understand your requirements - Do you want to invest or buy insurance or both? Do you want garanteed returns (or) are you fine with some risk?

Parameters

ULIP

Mutual Fund

Definition

ULIP allow investors to direct part of their premiums into different types of funds (Equity, Growth, Money market, SBI Bond, etc.).

A mutual fund pools the money from investors and uses it to invest in various securities according to a pre-specified investment objective.

Purpose
For both Investment and Insurance purpose.
Primarily for Investment purpose. No Insurance benefit.
Lock-in-Period
Lock in period for 5 years; you can withdraw your money. If the policy is discontinued in the first year, the surrender charge is 20% of the premium.
There is no Entry load and after one year there is no Exit load either. You can enter and exit at any time depending on market conditions and personal choice.
Loyalty Benefits
It comes with long-term investment.
No Loyalty (or) Long-term Investment benefits.
Track Record
Actually came into existence from 2005.
Established Product. Until 1987, UTI enjoyed monopoly in market, and then host of government financial companies came up with their own funds.
Tax Status
All Unit Linked Plans offer tax benefits under section 80C.
Only investments in tax saving funds are eligible for section 80C benefits.
Charges Structure
Charges in a unit linked plan include mortality charges for the life insurance provided. In addition, premium allocation charge, fund management charge and administration charges are applicable.
Mutual fund charges include an entry load, the annual fund management charge and an exit load, if applicable.

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