ULIP and Mutual Fund comparison

Comparison between Unit Linked Insurance Plans (ULIP) and mutual funds.

Description

Unit Linked Insurance Plans refer to Unit Linked Insurance Plans offered by insurance companies. These plans allow investors to direct part of their premiums into different types of funds (equity, debt, money market, hybrid etc.).

A mutual fund pools the money from investors and uses it to invest in various securities according to a pre-specified investment objective.

Objective

Unit Linked Insurance Plans are long term plans offering you a dual benefit of insurance and investment.

Mutual funds are ideal investment tool for the short to medium term.

Tax Benefit

All Unit Linked Plans offer tax benefits under section 80C.

In Mutual Funds, only investments in tax saving funds are eligible for section 80C benefits.

Switching options

Unit Linked Plans allows you to switch your investment between the funds linked to the plan. This enables you to change the risk return.

In Mutual Funds, no switching option is available. If you are not satisfied with the performance of the fund you can exit completely from the same by paying exit charges, if applicable.

Additional Benefits

Some of the Unit Linked Plans give you an additional benefit or loyalty benefit by issuing extra fund units.

There are no additional benefits issued by mutual funds.

Liquidity

Unit Linked Plans have limited liquidity. One needs to stay invested for a minimum period of time as specified in the policy before redeeming the units.

You can easily sell mutual fund units (except for ELSS and funds that have a minimum lock-in period).

Charges structure

Charges in a unit linked plan include mortality charges for the life insurance provided. In addition, premium allocation charge, fund management charge and administration charges are applicable.

Mutual fund charges include an entry load, the annual fund management charge and an exit load, if applicable.