ULIP or Mutual Fund: Which is the best?

If you have to choose an investment option then you should take care of the following things:

  • More importantly, you have to ensure that your family’s future expenses are taken care, even if something unfortunate were happening to you.
  • Another factor that you need to consider is the inflation. It has a dual impact on your hard-earned savings. Inflation not only erodes your current purchasing power but also magnifies your monetary requirements for the future.

 If you have to choose between Mutual Fund and ULIP then you should require a lot of information on these two investment options to take a perfect decision for your future. One of the best strategies to choose between two options is to differentiate these two financial products on the basic of certain related points.

 Difference between Mutual Fund (MF) and Unit Linked Insurance Plan (ULIP)

  •  Regulation: Mutual Funds are regulated by the SEBI, while ULIPs are regulated by the IRDA.
  • Flexibility: ULIPs are more flexible than MFs, as they allow you to increase your life cover while the premium remains same; in mutual Fund you have to buy a new policy altogether.
  • Knowledge of Finance & Stock market: If you have the knowledge of finance and are aware of the basics of the stock market, then you can invest in MFs. If not, go for ULIPs which is a mix of both insurance and investments.
  • Tax Benefits: Any investment made in ULIP qualifies under section 80C of income tax act, where an investor can save tax. In case of mutual funds only investment in ELSS (Equity Linked Saving Scheme) a specific type of mutual fund scheme qualifies for tax benefits under section 80 C.
  •  Charges and cost: The high first-year charges, mutual funds are a better option if you have a five-year horizon. But if you have a horizon of 10 years or more, then ULIPs have an edge. To explain this further a ULIP has high first-year charges towards acquisition (including agents’ commissions). As a result, they find it difficult to outperform mutual funds in the first five years. But in the long-term, ULIP managers have several advantages over mutual fund managers.
  •  Regular Investment: In ULIP, Premium from the policyholder come at regular intervals, so, investments can be planned out more evenly. Mutual fund managers cannot take a similar long-term view because they have bulk investors who can move money in and out of schemes at short notice.

 Now I think, you could easily choose between ULIP and MF on the basic of your needs.