ULIP Or Mutual Funds? Here’s The Answer To Where You Should Invest
In investment there’s only one rule, don’t lose money!
Making a profitable investment is not as difficult as it seems, but people fail to understand that investing money takes a lot more than just putting away your money in someone else’s hands. It requires a healthy financial state of an individual, complete know-how of the market in which you’ll be investing in and the options at hand which would bring you the best results.
Whether you have short term or long term investment goals, the decision to invest your money should be always based on your current financial situation and it should also depend on how many existing financial liabilities do you possess. Taking up more financial outflow on an already burdened budget would only worsen your economic folio on multiple fronts. Such things result in serious debt issues and leave you in a spiral of financial concerns for a long long span.
Briefly, if you are facing difficulties in coping with your everyday budget needs & requirements and often default from providing for your financial liabilities, then you should stay miles away from any investment plan.
Only when you have developed an expertise in handling your finances, and you have some extra credit left in your kitty every month, should you even think of investing in one of the options available.
But this article is not about when and whether investments are good for you or not and keeping these statutory warnings aside, instead, we’ll talk about ULIPs and mutual funds for an investment choice.
The two of these investment profiles serve specific purposes and needs. Moving ahead, we’ll walk you through their various elements, advantages & disadvantages, making sure you have a better understanding of ULIPs and Mutual Funds on a highly descriptive note.
ULIPs At A Glance
Unit-Linked Insurance Plans or ULIPs serve a dual purpose of investment and insurance. People who have not insured an amount to be paid to their family members in case of an untimely death or such contingencies can opt for ULIPs, these serve as an insurance policy along with being a great investment option as well.
A part of your regular premium is put aside as the sum insured and the rest is put in the market for growth perspectives. Also, these come with several other benefits that cannot be found in any other investment plans. From the duration after which you can withdraw your money to organizing and segregating them towards better-performing assets, one has a number of authorizations while dealing with ULIPs.
An Insight Into Some Of Its Rewarding Aspects
Dual Benefits
As the name says, it is fundamentally dual in nature. It serves as an insurance policy as well as an investment option. Therefore, one gets the best of both worlds when invested in a ULIP policy.
To make things worthier, one can add various riders (Insurance specific add-on) to a ULIP at any given time and can customize it to the prevailing needs and personal requirements. Making it more user-oriented than any other investment option.
Flexibility In Switching Funds
When invested in other options, you cannot switch over if the fund is not performing well, whereas, in a ULIP, you get the freedom to switch over to better performing funds in the market at any given time.
These plans are dynamic and can be changed over as per the need of the market and individuals. One can choose from various sectors and industries as well to make the most of the funds invested.
Early Withdrawal
Other investment options have a lock-in period of a minimum of 10–15 years, but in a ULIP you get to withdraw the amount invested after 5 years or so, depending upon your policy. Making it a better option for those looking for an early harvest of their funds.
Allocated Fund Managers
If you don’t have enough time to manage these funds, ULIPs can be your best bet in the investment world.
Some ULIPs come with allocated fund managers who are experts in this field and keep an updated map of the current market conditions, to regularly monitor and customize your fund for maximum capital yield. Making it suitable for the working class individuals who cannot graph out the futuristic needs of your invested amount themselves.
Tax Benefits
More like any other insurance policy in the market, even ULIPs come with tax benefits under section 80C of the income tax act. What’s better than an investment that adds to the value of money, is an insurance policy that saves on taxes and gives you the freedom to plan your futuristic financial liabilities in a better way than anything else. Undoubtedly, it’s a financial perk you won’t find in any other investment option in the market.
Also, one must keep in mind that ULIPs cannot be misunderstood with a term insurance plan or any other dedicated insurance policy in the market, which serves a different purpose and requires a comparatively lesser premium amount to be paid.
Please make a note that if you’re not in the mood to invest a decent part of your monthly income in a long run and are looking for just an insurance policy that serves for possible contingencies, then this might not be as beneficial as you would expect. You should be looking forward to ULIPs only if your major goal is to invest and you won’t mind something like an insurance policy that comes with it as an added benefit.
Mutual Funds At A Glance
Mutual Funds are core investment plans specifically for those looking forward to growing their surplus wealth at hand.
On a more specific note, it is a dedicated investment plan that’s better than your everyday stockbroking and stock handling procedures that come with greater risks and require inside knowledge to break even with the funds invested at times. And due to this, mutual funds are more accepted across the globe as a suitable investment option for the common man.
The money invested in these plans is diversified, managed and accentuated by experts.
Working upon the principle of not keeping all your eggs in one basket, they reduce the risk of losing value by great extents. Making it one of the best investment options available in the market.
An Insight Into Some Of Its Rewarding Aspects
Diversification
Working under a “Diversification of Funds Model”, your invested amount is segregated among 50–200 companies, making it much more immune to market collapses and value meltdowns of economies. Such an investment plan aggregates to the invested amount more than the usual ones by constantly switching over to better-performing assets.
Long Term Investment
Perfect for a long term investment plan, Mutual Funds add the most value to the amount invested when locked in for a longer span. Liquidity of the same is still possible under some of its schemes, but it is recommended that one should stay in the plan for a longer time than usual. Because of their diversified nature, these plans require some time to add substantial value to your money. And abandoning such a ship in rough waters would only make you left behind in the race. So just stick with it, even when the market shuffles. On a longer run, your funds are more probable for a better yield.
Best In Class Returns
The returns and dividends are always better than the usual investment options at hand.
Until and unless you hit a jackpot at some investment you made in the past, you cannot surpass the numbers generated by a mutual fund upon maturity. They are known to have made fortunes for the people across the globe, those with limited retirement options can benefit from this by investing a small portion of their monthly income for a long time and then reap the fruits later on.
Dynamic Investment Modes Available
With options like SIPs and various other investment modes available, you can pay in small monthly installments or lump-sum at regular intervals as well. After the lock-in period completes, you can liquidate the income or choose to redirect it in the same plan as well.
Flexible Liquidity Options
A Mutual Fund comes in two kinds of plans, regular and tax saver. When in a regular plan you can liquidate your income after a few months, however, in a tax saver plan you have to wait till the lock-in period of 3 years to withdraw the dividend or the principal amount. In both cases, your money or the sum insured is well managed and brings along great numbers in terms of income earned.
Tax Benefits
Investments are often tagged under taxable income, but if you plan your investment under an ELSS Mutual Fund (Equity Linked Saving Scheme), then you become eligible for a tax rebate of up to 15000 under the section 80C of the income tax act. These funds are invested in such companies that allow such dynamism in these plans.
Please do not consider investing in a mutual fund if you are looking forward to earning a huge amount of money in a short span because these plans take time to add value to the sum invested.
Also, just like all other investment options, even Mutual Funds do have a risk quotient. Investing in mutual funds can even decrease the value invested in case the companies you chose. If it does not perform over the period you’re in it. And given the time it requires to yield better results is larger than many other investment plans, one must carefully assess all the short term needs before investing in such a scheme.
The Verdict!
While choosing between mutual funds and ULIPs, first you need to forecast your requirements thoroughly. If you happen to possess an insurance policy already, then a ULIP would not be of much use.
In such a scenario, go ahead and invest in a Mutual Fund. But if you don’t have an existing insurance policy and are looking forward to investing some money as well, then a ULIP can be a perfect match for your needs, more like killing two birds with one stone.
Short Term And Long Term Needs
Coming down to short term and long term needs, a Mutual Fund is for those looking forward to some long term investments and a ULIP is more suitable for those in need of a quick response.
Mutual funds bring in good numbers only after a comparatively longer span, whereas a ULIP works differently and starts showing results sooner because of its less diversified approach.
But remember, in a ULIP or a mutual fund, in either of these you would require careful discretion of your financial affordability and make some risk assessment to an extent.
Hence please account for such things way ahead of your plan to invest. And for the rest, just stay rest assured because if you need to grow your money, there’s nothing better than investing it in the market.
