Are Mutual Funds better than ULIPs or should in continue to invest in ULIPs as suggested by my insurance agent, is the question which bothers many investors. Mutual Funds are definitely a better investment option as explained in this article.
A ULIP (Unit Linked Insurance Plans) is an Insurance product which combines the benefits of Savings and Life Insurance cover. The money invested in a ULIP is allocated into Equity shares and/ or Debt Instruments by the Insurance Company. ULIPs have a minimum premium paying term and lock in period of 5 years. This can be extended further by choice. ULIP usually provides up to 10 times of the Annual Investment as Insurance cover. The premium paid by the Investor is segregated into premium for Life cover and the Investment component. The Expenses incurred by an Investor are also high as compared to Mutual Funds. ULIPs were considered as a good investment avenue from 10+ year’s perspective. However we have come across many Investors with complaints about their returns from ULIPs, irrespective of which Insurance company they have invested in.
In our opinion, Mutual Funds are a better investment choice for Investors. Mutual Funds charge lower Management Fees and have a better track record of higher returns as compared to ULIPs. Besides, performance record of ULIP investments is not publicly available, except for the information provided by the Insurance Company about its own ULIPs.
If your objective is to save Income Tax under section 80C, then you can consider a good ELSS (Equity Linked Savings Scheme). The lock in period for ELSS is 3 years as against 5 years in ULIPs. Good ELSS schemes are known to have given double digit annualized returns. Profits realized from redemption of ELSS are also tax free.We hope, we have been able to satisfactorily answer your question as to, are Mutual Funds better than ULIPs, as a long term investment option and wealth creation tool.
Article Originally Written in March 2019.
Mungekar Wealth 