There are numerous investment options that help you accumulate wealth over time. But investing in the options that help to give higher returns is crucial. In this article we will discuss about Mutual funds and ULIPs which is a better investment bet.
In our life there are certain events for which we may require a high sum such as education of children, marriage or build a sizeable corpus for the retirement life. Stock markets can provide a considerably high returns but with a reasonably high risk. There are different channels through which investors can invest in the market and balance their long term goals. Two of which are through mutual funds and ULIPs.
What are Mutual funds?
Mutual funds are a popular investment option these days. Fund managers are responsible for handling the funds and they make investment decisions on behalf of the investors. These funds are identified based on different parameters such as risk, duration, type of market.
What are ULIPs?
ULIPs are the famous investment venture among investors. It offers investors dual benefit of insurance coverage as well as benefit of investment in the markets.
What Is The Difference Between Both The Products?
Return on ULIPs:
ULIPs provide a fixed sum irrespective to whether the market performs or not. So, the returns based on ULIPs are quite less. In contrast the mutual funds provide much higher returns, but they have a high risk factor as interests are completely dependent on the market returns.
Lock-in period:
ULIPs are known to be insurance product and the insurance company decides the lock-in period of ULIPs which is 5 years. In case of Mutual funds, the lock-in period is just one year, while in the case of ELSS funds the lock-in period is for 3 years.
Transparency:
ULIPs are less transparent as compared to Mutual funds as they offer a mix of insurance and investment. The underlying charges and the asset allocation charges make it lesser transparent while in case of Mutual funds the fee charged and the holding in portfolio is comparatively transparent.
Difference in taxation:
ULIPs are subjected to tax deduction under the Section 80C and Section 10 (10D) of the Income tax Act. The deduction amount is up to 1.5 lakhs per annum. In case of Mutual funds only ELSS funds provide the benefits of Tax reduction while other Mutual funds do not provide any tax deduction, but tax reduction is applicable as per the tax bracket.
Risk Coverage:
Unlike ULIPs, Mutual funds do not provide any life or risk coverage to the investors. You need to purchase a different insurance plan along with the existing mutual fund to assure the life coverage.
Only those can invest in mutual fund schemes with a moderate to high-risk appetite, search for high liquidity, and already have a term insurance policy.
When can you consider buying the ULIP plans?
One can Buy Mutual funds anytime when they have a medium to long term goals while in case of ULIPs many prefer to have separate insurance and investment scheme to make sure they have adequate finances to support in future.
