Mutual funds vs ULIP

by Shakti Singh Dulawat on November 26, 2008

uAlmost all investor ask question that what is different between ULIP and mutual fund, it is necessary to know about both scheme before investing.
We are mention two different article that show the some difference between both. Before reading this article you must read.
Read What is ULIP
Read before buy ULIP
Read what is mutual fund
Read advantage of SIP

1) ULIP are not a mutual fund, even though in some ways their structure is quite similar. In the sense, they too invest in the equity and debt markets. The risk lies on the investor. ULIP issue units and reveal the net asset value of these units. That is where the similarity ends. ULIPs are a mix of investment and insurance.
Mutual fund investors have the option of either making lump sum investments or investing using the systematic investment plan (SIP) route which entails commitments over longer time horizons. The minimum investment amounts are laid out by the fund house.

2) ULIPs invest for the long term, as they expect investors to stay for the long term. And the purpose of a ULIP is also different build assets through a pension plan, retirement plan or child plan. All of which, need very long term investing, say 10-15 years or even more.
Mutual fund investment is also best for long term, but it show result after 3-5 years. In my opinion if you are not getting profit after 3-5 years in mutual fund then your invest plan is wrong.

3) The advantage a ULIP has is that it also blends insurance into the same plan. The insurance you buy could be a standard term cover or a critical illness rider is at the same rate as which you would buy it independently. But the advantage is that here it is embedded into the same policy, and that gives additional flexibility to increase the risk cover periodically as you grow older or earn more.
Before some times mutual fund companies also start insurance facility in SIP, but Selling such products was banned by Life Insurance Council, Amfi’s counterpart in the insurance industry.

4) ULIP investments qualify for deductions under Section 80C of the Income Tax Act. This holds good, irrespective of the nature of the plan chosen by the investor. On the other hand in the mutual funds domain, only investments in tax-saving funds (also referred to as equity-linked savings schemes) are eligible for Section 80C benefits.
In Mutual fund Section 80C benefits are available only on investments in tax-saving funds.

Read ULIP FAQ’s

So it is not an issue, of whether a mutual fund is better or a ULIP. It is about your need. Both can co-exist in your basket of needs. So identify your needs with a financial planner and then pick the product suitable for you.
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