Article

ULIP or Term Insurance + Mutual Fund Investment: Which Is Better?

01 Jun 2017 Prasanth Menon

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Let’s say you were selecting a team for IPL. Who would you have in your team? Would it be all bowlers? Or all batsmen? Or Just wicketkeepers? No right! However, if given a chance, you would want to select a team that has all round players. On occasions, such team could do well. However, there would be occasions when you would want a specialist bowler, opening batsmen, wicketkeeper, middle-order batsmen and a spinner. The case is similar when it comes to your investments. Occasionally, you would want your investments to be multipurpose. However, on occasions, you would want some specialist investments to take you over the boundary line.

Let’s revisit two such investment avenues that are usually confusing. One is unit-linked insurance plan (ULIP, the team with all all-rounders) and other is insurance+mutual fund investment (the team with specialists).

Features of insurance + Mutual funds

When you want to invest with an objective in mind, you usually tend to invest in mutual funds. If you want to invest for tax saving purposes while insuring yourself against unforeseen circumstances, you buy a term insurance with various riders. You individually can get the best of both worlds when you invest in insurance and mutual funds. Let’s look at the advantages of this type of investments:

  • There is no lock-in period; cashing out your funds is simpler

  • Because you buy a term plan, it is comparatively cheaper

  • If you feel that your mutual fund investments are not performing, you can easily switch your investments

  • You could simultaneously invest in multiple categories of mutual funds

  • You can withdraw from the mutual funds while retaining your term insurance

  • You have the option to counter inflation or other economic turmoil by smartly planning your investment and premiums

Features of ULIP

Unit-linked insurance plans or ULIPs bring you the best of both worlds. When you invest in ULIP, a part of your investment is directed as premium payment for an insurance plan and a part of your payment is directed to buy equities or into debt funds as per your risk appetite. The advantages of ULIPs are as follows:

  • You need not keep track of your investments; you just need to pay the premium

  • You can easily choose and switch between your fund options

  • Some ULIPs also allow you to increase your life covered

  • You can also increase your premium amount to maximize the returns

  • ULIP investments can be for different goals as well; you need not invest just for investing

  • Tax benefits while providing insurance and allowing you to invest

  • Triple tax benefits structure is applicable

  • You may also make partial withdrawals but only after the lock-in period

  • Though you invest in market that is risky, you still get some assured benefits and also have your life insured

  • You need not pay dual insurance-related and mutual fund associated charges

  • The entire investment does not include any service tax other than the mortality charges

ULIPs and Mutual funds+Insurance toe-to-toe

Let’s look at how ULIPs and mutual funds+Insurance fare toe-to-toe on factors that are not already mentioned above.

Unit Linked Insurance Plans

Mutual Funds + Term Plan

Every ULIP has a cost linked with it.

MFs too, have cost attached. Term plan added brings additional cost.

They provide transparency and flexibility as compared to other investment options in insurance segment

Transparent product. All costs are declared.

Initial tax is saved under 80C. So premium paid up to 1 lakh can save up to 30K depending on the tax bracket.

80C is provided by specific schemes only. These schemes have a lock-in for 3 years essentially.

The final amount at maturity is tax-free under section 10(10D). Thus the income is tax-free for self as well as the nominee.

Long term/ short term capital gain taxes are applicable.

The whole investment amount does not bear any service tax other than the mortality charge.

Other than these tax saving ones, lock- in is not applicable

Thus, we can see that both of these investment avenues have their own advantages.

Conclusion

ULIPs and mutual funds+insurance have their own advantages. Now that you know them, you can make an informed decision before you plan your investments. Either of these investments has the potential to fulfill your goals while insuring yourself against unforeseen circumstances.

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ULIP or Term Insurance + Mutual Fund Investment: Which Is Better?

01 Jun 2017 Prasanth Menon

New Page 1

Let’s say you were selecting a team for IPL. Who would you have in your team? Would it be all bowlers? Or all batsmen? Or Just wicketkeepers? No right! However, if given a chance, you would want to select a team that has all round players. On occasions, such team could do well. However, there would be occasions when you would want a specialist bowler, opening batsmen, wicketkeeper, middle-order batsmen and a spinner. The case is similar when it comes to your investments. Occasionally, you would want your investments to be multipurpose. However, on occasions, you would want some specialist investments to take you over the boundary line.

Let’s revisit two such investment avenues that are usually confusing. One is unit-linked insurance plan (ULIP, the team with all all-rounders) and other is insurance+mutual fund investment (the team with specialists).

Features of insurance + Mutual funds

When you want to invest with an objective in mind, you usually tend to invest in mutual funds. If you want to invest for tax saving purposes while insuring yourself against unforeseen circumstances, you buy a term insurance with various riders. You individually can get the best of both worlds when you invest in insurance and mutual funds. Let’s look at the advantages of this type of investments:

  • There is no lock-in period; cashing out your funds is simpler

  • Because you buy a term plan, it is comparatively cheaper

  • If you feel that your mutual fund investments are not performing, you can easily switch your investments

  • You could simultaneously invest in multiple categories of mutual funds

  • You can withdraw from the mutual funds while retaining your term insurance

  • You have the option to counter inflation or other economic turmoil by smartly planning your investment and premiums

Features of ULIP

Unit-linked insurance plans or ULIPs bring you the best of both worlds. When you invest in ULIP, a part of your investment is directed as premium payment for an insurance plan and a part of your payment is directed to buy equities or into debt funds as per your risk appetite. The advantages of ULIPs are as follows:

  • You need not keep track of your investments; you just need to pay the premium

  • You can easily choose and switch between your fund options

  • Some ULIPs also allow you to increase your life covered

  • You can also increase your premium amount to maximize the returns

  • ULIP investments can be for different goals as well; you need not invest just for investing

  • Tax benefits while providing insurance and allowing you to invest

  • Triple tax benefits structure is applicable

  • You may also make partial withdrawals but only after the lock-in period

  • Though you invest in market that is risky, you still get some assured benefits and also have your life insured

  • You need not pay dual insurance-related and mutual fund associated charges

  • The entire investment does not include any service tax other than the mortality charges

ULIPs and Mutual funds+Insurance toe-to-toe

Let’s look at how ULIPs and mutual funds+Insurance fare toe-to-toe on factors that are not already mentioned above.

Unit Linked Insurance Plans

Mutual Funds + Term Plan

Every ULIP has a cost linked with it.

MFs too, have cost attached. Term plan added brings additional cost.

They provide transparency and flexibility as compared to other investment options in insurance segment

Transparent product. All costs are declared.

Initial tax is saved under 80C. So premium paid up to 1 lakh can save up to 30K depending on the tax bracket.

80C is provided by specific schemes only. These schemes have a lock-in for 3 years essentially.

The final amount at maturity is tax-free under section 10(10D). Thus the income is tax-free for self as well as the nominee.

Long term/ short term capital gain taxes are applicable.

The whole investment amount does not bear any service tax other than the mortality charge.

Other than these tax saving ones, lock- in is not applicable

Thus, we can see that both of these investment avenues have their own advantages.

Conclusion

ULIPs and mutual funds+insurance have their own advantages. Now that you know them, you can make an informed decision before you plan your investments. Either of these investments has the potential to fulfill your goals while insuring yourself against unforeseen circumstances.