What are Difference between ULIP and Mutual Fund

Difference between ULIP and Mutual Fund

This is one of the most commonly asked questions by a potential investor who is often confused by the mix use of these 2 investment instruments. Many financial planners use these terms interchangeably. However, ULIP and Mutual Fund are two separate concepts.  We have explained the meaning of ULIP and Mutual Fund and the difference between them. 

Mutual fund

Mutual fund is an investment plan where your money is managed by a portfolio manager. He puts your money into multiple companies on the basis of your investment objectives and associated risks. For every investment made in mutual fund, certain units of that fund are allocated to the investor. There are multiple types of mutual funds available in the market; each having its investment objectives, liquidity and risks.

Unit Linked Investment Plans (ULIP)

Unit linked investment plans are a hybrid combination of investment and insurance schemes. Herein, a small portion of the monthly premium goes to secure life insurance and the rest is invested just like a mutual fund. 

Difference between ULIP and Mutual Fund

Basis Mutual Funds ULIP
Regulating Authority SEBI IRDAI
Product Type Investment Insurance
Liquidity Highly liquid Less liquid
Potential Returns High returns subject to market risks Low returns as part of it are invested in the insurance 
Lock-in period Only in ELSS 3 to 5 years
Tax benefits ELSS are eligible for deduction under 80C.

Long Term-

Equity Funds: Tax Free

Debt Funds: 10% or 20%

Deduction under 80C
Charges  Low- 1% to 2.5% No upper limits
Portfolio Disclosure Mandatory Disclosure No such requirement

Regulating Authority and Product Type

Mutual funds are an investment product and are regulated by the Securities Exchange Board of India (SEBI). The Unit linked investment plan is essentially an insurance plan with additional investment option. 

Liquidity and Lock-in Periods

Multiple mutual funds options are available in the markets viz. equity, debt, growth, index, hybrid, etc. Most of the mutual funds are highly liquid as compared to less liquid ULIPs, as ULIPs are meant for a relatively long time. Usually, only ELSS mutual funds have a lock-in period, rest all mutual funds can be redeemed easily almost anytime. 

Potential Risks & Returns  

ULIPs are less prone to market risks are they are insurance instruments. Mutual funds are comparatively riskier as they invest directly into the market which is highly market. This volatility is also the reason why mutual funds give a higher return than ULIPs. ULIPs offer a safer but lower return as a chunk of it is invested in insurance policies. 

Portfolio Disclosure 

As per the rules of SEBI, the companies have to maintain a strict disclosure of transactions and such other information. SEBI has directed all fund managers to send the portfolio statement via email to its unit holders every month. Such rules and regulations help to ensure transparency and accountability. On the other hand, there is no such regulation for ULIPs.

Tax Benefits & Charges

The charges associated with mutual funds are as low as 1% to 2.5% which is far lesser than that of ULIPs. Charges on ULIPs have been reported to be as high as 18% and there are no such upper limits. ULIPs are eligible for deduction under section 80C. The ELLS category of mutual funds is eligible for deduction 80C. Mutual funds options other than ELSS do not have deduction under section 80C but they provide additional tax benefits such as returns on mutual fund up to a certain limit is exempt. Also, as per general reports LTCG on such mutual funds attracts much lesser tax. 

Do not Undermine the Importance of Health Insurance: Get it Now!

Having health Insurance for yourself and your family is very Important. Medical treatment and care is very costly thing. If somebody is hospitalized the amount which can be spend on the medical bills can destroy your all budget plans. And if the only person who earns becomes sick then it is very tough for the family to bear those expenses. All these problems can be solved by taking the right health insurance. A right health insurance policy can cover all the health aspects of medical health emergencies. Included hospitalization charges. Medical emergencies are uncertain and it is not necessary that everyone has good amount of money for these sudden situations. So It is always advised to planning the right healthcare.

Benefits of having a Health insurance Policy

  • Cash-free Treatment: If you take health insurance then if you have any medical emergency then you don’t have to run after for cash to deposit. Because your insurance company will collaborate with the hospital from your behalf.
  • Covering pre-existing diseases: Insurance policy also covers the pre-existing diseases if you choose the right medical health policy.
  • Transportation Charges: Insurance policy also covers the amount which is spend in transportation of the insured. The charges of ambulance and other transportations.
  • No Claim Bonus: If the insured person doesn’t file the medical claim in the gone year then the insurance policy pays the bonus amount to the insured person.
  • Medical Checkup: Insurance policy provides free medical check-up to the family if you choose the family health insurance.
  • Room Rent: Insurance policy also pays the room rent of the insured person, depending upon the policy chosen by you.
  • Tax Benefit: Premium which you pay on buying Health insurance is eligible tax deductions under section 80D of the Indian Income Tax Act.
  • Best Treatment: The other benefit of having medical insurance is that you can select best hospital according to your trust even if it’s expensive. Because if you have insurance then you have no issue of considering money before spending it in good hospital.