ULIP Vs Mutual Fund: Knowing the Difference Can Help You Manage Your Money Better
PNB MetLife 09-07-2018 02:21:16 PM
Do you have various questions running in your mind like, which investment options are beneficial for me? How do Mutual Funds and Insurance differ from each other? Before investing your hard-earned money, the first step you typically take is to search the internet till you find the best possible investment option.
If you search for Mutual Funds and ULIP, you will get numerous articles and definitions on the same. Before moving forward, let us first explain the difference between the two.
- Unit-Linked Insurance Plans (ULIPs)
It is popularly known as the Unit Linked Insurance Plan. In simple words, ULIP offers life insurance cover along with investment options in the stock market. So, a ULIP is a combination of insurance as well as investment.
- Mutual Funds (MFs)
Mutual Fund is a pool of money collected from various investors which is then invested in stocks, debts, and other money market instruments. Every investor has individual units and the profits generated from this investment are distributed proportionately amongst all the investors.
The primary difference between ULIP vs. Mutual Fund is of insurance and investment. Insurance will not only help you grow your wealth but will also protect your family in emergencies. Whereas staying invested in mutual funds will help you grow your wealth with time.
How does ULIP Plan differ from Mutual Funds?
- Difference: The most significant advantage of ULIP over Mutual Funds is that the latter doesn’t provide you with a life cover; whereas, this is the quintessential part of ULIP. Life cover is the sum assured which the insurance company pays your family in case of any unforeseen happenings.
- Benefits: Some ULIP products benefit you with additional protection via inbuilt advantages. These products are for customers who are saving for a specific need such as their child’s education. These ULIP provide lump sum amount assured to the nominee in case of the parents’ death. Not only will the company pay the fund’s premium on behalf of the parent, but will also give the family a regular income for the remaining duration of the policy. There are no such schemes in Mutual Funds.
- Risk: The exposure to risk in Mutual Funds is very high as the higher proportion of investment is invested in equity for best returns. ULIP is comparatively less risky than Mutual Funds. Even though the investments are in equity and bonds, the nature of insurance products they are put in is closely scrutinized.
- Taxability: Another major advantage of ULIP insurance is that they are very tax efficient in comparison to Mutual Funds. The capital gains which are earned from ULIP are tax-free irrespective of equity or debt investments. On the contrary, equity mutual fund investors must pay 10% tax on long-term capital gains and 15% tax on short-term capital gains.
- Guarantee: Irrespective of whether the opted insurance plan is making money, ULIP has to give you the sum assured. Therefore, a guaranteed return is another feature of ULIP. In Mutual Funds, this characteristic is not there as these investments are subject to market risks.
In a nutshell, it’s important to have a balanced portfolio for your investments to grow. That’s why, having both unit-linked insurance plans, and mutual funds will be considered a wise investment decision. Go ahead, and invest today!