ULIP V/s Mutual Funds

Please find the differences to evaluate the two avenues:

Parameters to differentiate

1. Ease of investment

With a systematic investment plan (SIP), investors can start investing in a mutual fund with as little as Rs 500 a month for a short duration, such as 12 months. An investor can discontinue a SIP midway without any penalty or financial implications and with the investment intact.

ULIPs on the other hand are more structured. An insurance advisor will assess the investor’s income and financial responsibilities, and then draw up an investment plan to pay a fixed premium for a minimum of five years. However, there is a financial implication if an investor wants to exit the ULIP before the minimum investment tenure.

2. Expenses

With some exceptions where Insurance Regulatory and Development Authority (IRDA) prescribe limits, the insurance company determines most expenses. The most expensive part about ULIPs is the high premium allocation charge .Then there are mortality charges, fund management charges, policy administration charges among others.

With mutual funds, expenses are lower. Securities and Exchange Board of India (SEBI) sets the upper limits for expenses chargeable to investors. Expenses charged by mutual funds to investors for a range of activities like fund management, sales and marketing, administration are subject to certain limits. 

3. Liquidity

If an investor needs investment to be easily convertible into cash on short notice, then it is better to opt for a mutual fund. Mutual funds are more liquid since it is more widely traded in the market. ULIPs have a lock-in period of minimum five years. 

Conclusion

ULIPs and mutual funds both have their benefits, and comparing them is like comparing apples and oranges. But it is important as an investor to consider that ULIPs are long term plans.