Mutual Fund Investments v/s ULIP: Where to Invest – Axis Direct
May 09, 2018 | Source: www.coverfox.com
Mutual Funds V/S ULIP
The burning question is, “Where should I invest – ULIP or Mutual funds?”
A sound financial planning is all about the balancing act. It is about investing in the right product at the right time to reap the maximum benefit.
Before you decide, let us first clearly understand what ULIP and Mutual fund stand for, and how each differs from the other.
What is Mutual Fund?
Generally, whenever, one thinks of investing money, the most spontaneous response is mutual funds. Because mutual funds are one of the oldest and common investment instruments for investors looking for gains.
Here’s how mutual funds works:
You – the investor invests money in a mutual funds which runs with the support of a trustworthy fund manager.
Fund Manager – Collects funds from different investors like you.
Mutual Fund Scheme – Mutual funds are investment schemes - from where you can expect to gain returns. The collected amount of money from different investors is then invested in a well-calculated and researched based scheme to generate returns. This is further distributed among the individual investors. In short, mutual funds are purely investment opportunities to earn good returns.
Types of Mutual Funds: There are various options, which includes equity funds, liquid funds, debt funds, money market funds, hybrid funds, tax-saving (ELSS) funds, and many more.
Benefits of Investing in Mutual Funds
Maximum Returns: There is a potential of high returns. Investment in equity and hybrid funds has a higher potential of high returns. Ideally, investors looking for short or medium term investment products invest in mutual funds.
Track Record: Mutual funds have been in the market since long, because of which, market trends are available to the investors. Here, the investors can track the performance records before investing. Long history of scheme allows to make right decisions.
Liquidity: Very liquid, one can invest and exit at any time, except in the case of ELSS. Basically, there is no lock-in period, except for ELSS funds which have a 3 year lock-in period.
What is Unit Linked Insurance Plan (ULIP)?
Do not be confused with mutual funds and ULIPs. Because they do have a few similarities, however, they are different financial products. ULIP is a unique and strategic financial product, which is a combination of life insurance and investments.
In ULIP, a part of the premium is deducted as mortality charges for providing life cover. The other part of the premium is invested in different funds based on the risk appetite of the investor.
ULIP fund allocating options: The funds where your money could be invested are bonds, equities, debts, market funds, or hybrid funds - depending on the investor.
Benefits of Investing in ULIP
Life Cover: The life insured is covered against the risk of an untimely death. There’s an assured death benefit that is payable to the nominee in case of an untimely death of the life insured. If there’s a rider attached to the ULIP, the nominee receives the rider benefit also. However, the death benefit is usually, the higher of sum assured or the fund value.
Tax Savings: Premiums paid towards the ULIP are tax-free under Section 80C of the Income Tax Act, 1961. The payout received by the nominee is also tax-free under Section 10(10D) of the Income Tax Act, 1961.
Add top-up to your base plan: ULIP gives an opportunity to increase your base plan coverage and investment fund. Top-up is a one-time lump sum investment you can pay over and above your premiums. You can avail this facility anytime during your policy term. It is an optional feature of ULIP. This additional amount paid through top-up gives you an advantage to increase your sum assured, and amount as an investment.