A couple of years ago when due to continues rising in stock market developed a sense of getting benefits from capital recognition has introduced a new investment tool known as Unit Linked Insurance Plan or ULIP. It has a portfolio linked with the market, because of which this insurance instruments has subjected investors to high market risks. Being a notional product, ULIP is a best option for making easy wealth and it did it very well within the past few years. All this was the story of the past, with the downfall of market situation has started some great disturbances.
Investors start noise and compelled insurance firms to change their policies as the higher charges for diminishing market was really disappointed for investors. Insurance companies have restructured their old product to the latest ULIP but it is not that much benefit in terms of returns, however, is good enough in terms of security.
On the other hand, if you speak about mutual funds, you will come to know that they are complete investment instruments with lots of different types on the premise of risk appetite. Mutual funds allow you to invest your money purely in equities (Equity oriented) or in both debt and equities (Hybrid). Debts are the funds that give you fixed income like bonds etc.
Here is the understanding of two investment merchandise discussed in comparison with one another.
Risk appetite
As ULIPs are insurance items therefore have a comparative low risk. You can also get access to a number of different products under ULIPs either equities or debts. However, being insurance merchandise it need lots of care in investments. On the other hand, mutual fund allows you various investment options, equity based investments have high risk as compare to that of hybrid, whereas hybrid have a very high risk as compare to debt.
Rate of return
As everyone knows, low risk has always low returns and high risk has always high returns, same is the case of ULIPs, because of its less risky nature they in turn give you low returns, whereas, mutual funds have high risk so they give you high returns. Because, in mutual funds there is no assurance of sum give back to you as ULIPs.
Investment time horizon
Similar to other insurance policies, ULIPs also offer a particular time period to invest for and before the tenure of that period the buyer is unable to resell their ULIPs policy. The time horizon is generally based on three years to five year plan according to the nature of the products. Mutual funds don’t have any restriction in terms of time; you can sell your funds before tenure. A specific kind of mutual funds is also available having a fixed three year period of time, known as closed fund. This feature also made mutual funds the most liquidate funds as they are very frequent in the market.
Charges
ULIPs have higher charges as compared to mutual funds, the management charges of mutual funds are usually one or two percent.
Read Booking-
- Read Before Investing In Mutual Funds
- 10 Points Which Should Be Considered While Investing In Mutual Funds
Conclusion-
ULIPS and mutual funds, both are good sources for making wealth, however, it is important to keep in mind that both are totally different in nature, one being an insurance scheme provides protection to your family and the other one is a pure investment instrument. The choice is yours but always make sure you have sufficient understanding of both.
