Confused between ULIPs vs Mutual Fund? A Quick Guide

Nutan Gupta

13 Jun 2017

New Page 1

The moment when you have made up your mind to invest your money is clearly euphoric. You realize the potential of earning good profits in the near future and are satisfied with the way you are planning to secure your future. But this is just the beginning of the tough world decisions. Finance is complex and so are the decisions involved with it. Deciding on which product to invest is a long debate with yourself as well as your manager. Stocks, insurance, bonds, mutual funds or ULIPs, the list is endless. We help you resolve the long standing debate between investing in ULIPs or Mutual Fund with this article.

What is ULIP?

ULIP or Unit Linked Insurance Plan is a life insurance product. A ULIP ideally is an insurance cover plan for the policy holder with the benefit of opting to choose for any number of investment options such as stocks, bonds or mutual funds. The ULIP plan acts as a single integrated plan, so the dual benefits of investment and protection can be enjoyed according to the specific needs and choices of the investor.

ULIPs require the investor to pay a regular premium for the policy cover as well as the investment made in stocks and bonds for wealth appreciation. However, the premium amount is paid for both the parts only once. A part of the premium paid goes towards providing the policyholder insurance cover, and the other is invested in stocks and bonds for wealth appreciation.  A policyholder has the freedom to choose the financial product it would like to invest in as a part of the ULIP according to his risk appetite.

What is Mutual Fund?

Mutual fund is an investment scheme wherein many investors come together to invest their money through a collected pool. The collected corpus is under the care of a fund manager-a financial expert hired specifically to invest the collected money in different financial products such as stocks, bonds, and other asset classes. The investors in a mutual fund enjoy the dividends after a particular time frame. The dividends can be reinvested into the scheme to enjoy a greater profit at the time of exit.

While ULIPs and Mutual funds always keeps a smart investor busy with the thinking business, lets grab an overview on the similarities between the two.

ULIPs

Mutual Fund

There is definitely a risk involved in investing in ULIPs. ULIPs face the risk of defaults and changes in the rates of interest.

The risk involved in investing in this financial product is higher as the equity investment is dependent on market fluctuations and a fund manager’s decision.

An investor with the ULIP is awarded shares on the net asset value basis and the individual investor has the liberty to invest the money in any financial product of his choice.

While investors in mutual funds definitely have shares with them, the discretion to invest in a financial product solely lies with the fund manager.


While the similarities between the two are few, the points of contention are many and varied. Let’s look.

ULIPs

Mutual Fund

A ULIP is a two way investment into insurance as well as core investment product of an investor’s choice.

A mutual fund is a core investment product.

A ULIP is a carefully planned out financial investment with the help of a financial advisor who determines the monthly premium on the basis of the investor’s income and expenses for a specific time period.

A mutual fund investment can begin with as basic as an amount of 500 Rs per month for a minimum period of 12 months as a systematic investment plan (SIP).

The exit from the ULIP plan before its maturity requires the investor to bear the financial implication.

There are no penalty implications to be borne by the investor in case of the discontinuation of the SIP.

The expenses for ULIP are high as the Insurance Regulatory and Development Authority (IRDA)prescribe limits only in certain cases, thus an insurance company has an upper hand in determining the investor’s expenses. The high premium allocation charge is ruled to be not exceeding 10% of premium. With this are the additional charges of mortality, fund management charges, policy administration charges among others.

Expenses though seem to be lower for the mutual funds with the Securities and Exchange Board of India (SEBI) setting the upper limits for expenses, expenses charged by mutual funds to investors for a range of activities like fund management, sales and marketing, administration are subject to certain limits. Charges over and above the specified limit if any are borne by the fund house instead of investors.

ULIPs have an investment period determined, with a minimum of 5 years locked in from the very onset of the first transaction.

Mutual funds have the ease of being changed into liquid asset conveniently as they are traded in the market on a regular basis. However, all mutual funds are not liquid in nature with ELSS being the most apt example.

ULIPs are also expected to submit their quarterly reports before the investors.

Investors of the mutual funds, according to the SEBI guidelines need to quarterly updated on the numbers of their portfolio. However, a monthly practice is followed by industry to ensure a transparency between the fund manager and its investors.

ULIPs allow the investor to choose the sum that he wants to be invested in equities and in insurance cover. Investors are also given the option of entry and exit from a mutual fund whenever they want.

The decision of entry and the exit point of the investment relies with the fund manager with no flexibility to change the asset allocation midway.

ULIPs allow the investor tax relief up to a limit specified under the Section 80 C of income tax with the proceeds also remaining tax free in the hands of the investor.

ELSS is the only financial product while provides tax relief under the Section 80 C. A minimum of 1 lakh are allowed as deduction. The proceeds of the mutual fund

do not give the investor relief from tax payments and attract redemption charges. Non-ELSS funds have different terms and conditions for the tax implications depending on the nature of the mutual fund.


Making a decision between the two is indeed difficult, however if liquidity is a cause of concern for you then mutual fund is a safer bet with no lock-in period. ULIP should ideally be an option for an investor if he wishes to switch funds in between or aims for lower costs with less risks in the long run.

Whatever the choice, we wish you the best in all your financial planning.

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mutual-fund

Why to Choose Mutual Funds Instead of Directly Investing Into Equities?

Whether to invest in equities or mutual funds is a question that has plagued every investor. As someone who needs the best value for his/her investment should you invest in equity directly or via mutual funds?

Let’s start by first understanding what these two terms ‘equities’ and ‘mutual funds’ stand for-

Equities- Equities generally represent ownership of a company. If you own any equity in a company, you are a part owner of the said company (depending on how much equity you own).

Mutual Funds – It is an investment scheme which is professionally managed by an asset management company. It pools together the resources of a group of people and invests their money in equities, debentures, bonds and other securities.

Why choose mutual funds over equities?

For people who’ve never invested in either stocks or mutual funds, it is hard to know which is better and where to start. Broadly speaking, if you are a novice investor, mutual funds are not only less risky but also way easier to manage. Here are some ways in which investing in mutual funds is beneficial as opposed to investing in equities -

Diversification

Mutual funds provide more diversification as compared to an individual equity stock. When you invest in equity, you are investing in a single company which has its inherent risk. For example, if you invest Rs.20,000 in buying equities of one company, you could face a total loss if that particular company performs poorly in the market.  

If you invest the same amount in mutual funds, it will be invested in different kinds of stocks and financial instruments, high-risk and low-risk both, so you might not face total loss even if one company does poorly.

Scale of Investment and Lower Costs

For an individual investor buying and selling stocks is a difficult task due to its high price. Thus, any gains made from stock appreciation are nullified if the overall trading costs are considered. Comparatively with mutual funds, as the money is pooled from a large number of investors, the cost per individual is lowered.  

Another advantage of mutual funds is that you don’t need to invest large sums of money. Buying equities for a profitable venture needs huge amounts of money, a minimum of few lakhs. With mutual funds, you can start with Rs.1000 and earn profits on that as well.

Convenience

Keeping an eye on the markets everyday is a time-consuming business, especially if you are investing as a side gig. There are people who spend their lives studying the market and still end up sustaining heavy losses. Though investing in mutual funds does not guarantee high returns, it is stress-free and needs less work as compared to investing in equities.

To sum it up

It is important to remember that mutual funds have their own disadvantages as well. Thus, as with any financial decision, educating yourself and understanding the suitability of all the available options is the ideal way to invest. 


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Confused between ULIPs vs Mutual Fund? A Quick Guide

Nutan Gupta

13 Jun 2017

New Page 1

The moment when you have made up your mind to invest your money is clearly euphoric. You realize the potential of earning good profits in the near future and are satisfied with the way you are planning to secure your future. But this is just the beginning of the tough world decisions. Finance is complex and so are the decisions involved with it. Deciding on which product to invest is a long debate with yourself as well as your manager. Stocks, insurance, bonds, mutual funds or ULIPs, the list is endless. We help you resolve the long standing debate between investing in ULIPs or Mutual Fund with this article.

What is ULIP?

ULIP or Unit Linked Insurance Plan is a life insurance product. A ULIP ideally is an insurance cover plan for the policy holder with the benefit of opting to choose for any number of investment options such as stocks, bonds or mutual funds. The ULIP plan acts as a single integrated plan, so the dual benefits of investment and protection can be enjoyed according to the specific needs and choices of the investor.

ULIPs require the investor to pay a regular premium for the policy cover as well as the investment made in stocks and bonds for wealth appreciation. However, the premium amount is paid for both the parts only once. A part of the premium paid goes towards providing the policyholder insurance cover, and the other is invested in stocks and bonds for wealth appreciation.  A policyholder has the freedom to choose the financial product it would like to invest in as a part of the ULIP according to his risk appetite.

What is Mutual Fund?

Mutual fund is an investment scheme wherein many investors come together to invest their money through a collected pool. The collected corpus is under the care of a fund manager-a financial expert hired specifically to invest the collected money in different financial products such as stocks, bonds, and other asset classes. The investors in a mutual fund enjoy the dividends after a particular time frame. The dividends can be reinvested into the scheme to enjoy a greater profit at the time of exit.

While ULIPs and Mutual funds always keeps a smart investor busy with the thinking business, lets grab an overview on the similarities between the two.

ULIPs

Mutual Fund

There is definitely a risk involved in investing in ULIPs. ULIPs face the risk of defaults and changes in the rates of interest.

The risk involved in investing in this financial product is higher as the equity investment is dependent on market fluctuations and a fund manager’s decision.

An investor with the ULIP is awarded shares on the net asset value basis and the individual investor has the liberty to invest the money in any financial product of his choice.

While investors in mutual funds definitely have shares with them, the discretion to invest in a financial product solely lies with the fund manager.


While the similarities between the two are few, the points of contention are many and varied. Let’s look.

ULIPs

Mutual Fund

A ULIP is a two way investment into insurance as well as core investment product of an investor’s choice.

A mutual fund is a core investment product.

A ULIP is a carefully planned out financial investment with the help of a financial advisor who determines the monthly premium on the basis of the investor’s income and expenses for a specific time period.

A mutual fund investment can begin with as basic as an amount of 500 Rs per month for a minimum period of 12 months as a systematic investment plan (SIP).

The exit from the ULIP plan before its maturity requires the investor to bear the financial implication.

There are no penalty implications to be borne by the investor in case of the discontinuation of the SIP.

The expenses for ULIP are high as the Insurance Regulatory and Development Authority (IRDA)prescribe limits only in certain cases, thus an insurance company has an upper hand in determining the investor’s expenses. The high premium allocation charge is ruled to be not exceeding 10% of premium. With this are the additional charges of mortality, fund management charges, policy administration charges among others.

Expenses though seem to be lower for the mutual funds with the Securities and Exchange Board of India (SEBI) setting the upper limits for expenses, expenses charged by mutual funds to investors for a range of activities like fund management, sales and marketing, administration are subject to certain limits. Charges over and above the specified limit if any are borne by the fund house instead of investors.

ULIPs have an investment period determined, with a minimum of 5 years locked in from the very onset of the first transaction.

Mutual funds have the ease of being changed into liquid asset conveniently as they are traded in the market on a regular basis. However, all mutual funds are not liquid in nature with ELSS being the most apt example.

ULIPs are also expected to submit their quarterly reports before the investors.

Investors of the mutual funds, according to the SEBI guidelines need to quarterly updated on the numbers of their portfolio. However, a monthly practice is followed by industry to ensure a transparency between the fund manager and its investors.

ULIPs allow the investor to choose the sum that he wants to be invested in equities and in insurance cover. Investors are also given the option of entry and exit from a mutual fund whenever they want.

The decision of entry and the exit point of the investment relies with the fund manager with no flexibility to change the asset allocation midway.

ULIPs allow the investor tax relief up to a limit specified under the Section 80 C of income tax with the proceeds also remaining tax free in the hands of the investor.

ELSS is the only financial product while provides tax relief under the Section 80 C. A minimum of 1 lakh are allowed as deduction. The proceeds of the mutual fund

do not give the investor relief from tax payments and attract redemption charges. Non-ELSS funds have different terms and conditions for the tax implications depending on the nature of the mutual fund.


Making a decision between the two is indeed difficult, however if liquidity is a cause of concern for you then mutual fund is a safer bet with no lock-in period. ULIP should ideally be an option for an investor if he wishes to switch funds in between or aims for lower costs with less risks in the long run.

Whatever the choice, we wish you the best in all your financial planning.

Have Referral Code?