Ready reckoner on ULIPs, Traditional Plans and Mutual Funds

12th June 2017

Buying your own home, or a bigger home, buying a new car, your children’s education and their marriages and saving for your golden years are some of the goals that are important to you.

To fulfill these financial goals, you need the right type of savings and investment plans. Depending on when the financial goal will come up for fulfillment, you can select investment-oriented insurance plans. For goals that will arise in the near future (say 5-7 years hence) debt-oriented or balanced ULIPs would be suitable. You could also choose investment-oriented traditional plans such as endowment plans which matures at around the time the goal comes up for fulfillment or money back plans which provide funds at fixed intervals of time (these are usually suitable for children’s education needs). For goals that will arise in the distant future (beyond 7 years), equity-oriented ULIPs would be more suitable since these ULIPs have the potential to provide you higher returns over a longer period of time.

To make your life easy and get a clearer picture on the options available, let’s see a ready reckoner on ULIPs, Traditional Plans and Mutual Funds!!

Parameter ULIPs Traditional Plans Mutual Funds
Definition A ULIPs is a market linked product that combines the best of life insurance and investment. Though risk cover is promised, returns solely depend on the market performance


ULIPs are investment oriented

Traditional plans are insurance cum investment plans that promise both risk cover and returns to the investor  A Traditional Plan is insurance oriented A mutual fund is a pure investment product where in the investor’s money is invested in various  money market instruments and is managed by experts Mutual Funds are investment oriented
Investment The investment is made into a flexible choice of funds between debt, equity or hybrids A major portion of the premium is invested in debt instruments Investment is made in equities, debts and other money market instruments
Flexibility Flexibility in switching between funds (mostly free or involves nominal charges after a certain number of switches) Premium and Sum Assured can be decided by the investor Premium to Sum Assured ratios are fixed Flexibility in switching between funds (however it involves charges better known as entry and exit loads)
Risk Factor ULIPs are ideally designed for slightly more aggressive investors who are able to handle the turbulence of the market’s high risk & high return products Traditional Plans are designed for those who want returns but without riding the highs and lows of the market, Risk free but at the same time low on returns Mutual Funds are designed for investors keenly focused on multiplying their wealth, High risk & high returns products
Transparency Investor can track his investment portfolio to assess the daily performance of his funds The investor’s premium flows into a common fund which is usually not disclosed to him Investors can assess the value of their investment on a daily basis
Agility Moderately dynamic Mildly dynamic Extremely dynamic
Payback Potential Sum assured has to be delivered to the investor; however the returns solely depends on the market performance. The secret lies in the art of asset allocation that is choosing and switching between funds. All one has to learn is to manage and shift funds strategically. Patience is the virtue you need to have, to be able to make money through ULIPs. Continuing the policy for a longer period of time maximizes your chances of earning higher returns from the investments. Being a no risk investment, substantial returns can’t be expected from Traditional Plans. However, most traditional plans offer guaranteed returns & amp; suit conservative investors. Returns are dependent on market performance. If handled tactically, it can yield higher returns than ULIPs and even higher than Traditional Plans. However, one needs to be vigilant and switch in and out of funds in order to maximize potential of returns.
Management Managed by the investor himself Managed by the insurance company Managed by professionals with a knack and knowledge of money market
Liquidity The money can be withdrawn from your fund but only after the lock in period which can be anywhere between 3 to 5 years. However, pulling out money before the lock in period turns out to be a loss making proposition Plans can be surrendered by the policyholder at any time, provided at least 1 full year’s premium has been paid if premium paying term is less than 10 years or at least 2 full year premiums have been paid, if premium paying term is 10 years or more. The lock-in period in mutual funds differ from scheme to scheme. Usually Debt funds have a lock-in period. Equity funds don’t have a lock-in period. ELSS plans have a lock in period of 3 years.
Time Horizon Ideal for long term Ideal for long term Ideal for short to medium term
Cost and Charges It involves charges such as premium allocation charges, policy administrative charges, surrender charges, mortality charges, fund management charges, fund switching charges and discontinuation charges besides service tax. Charges involved are nominal and not transparent as in ULIPs. Every time there’s a flow of funds, it becomes taxable. The key charges include entry load, the annual fund management charge and an exit load
Tax Benefits Offers tax benefits under section 80C and 10 (10D). Returns are tax free as per prevalent tax laws. Offers tax benefits under section 80C and 10 (10D). Returns are tax free as per prevalent tax laws. Offer tax benefits under section 80C but only for that portion of investment that goes into tax saving funds (ELSS). In ELSS, Dividends and capital gain are tax free.
Ideology Putting your eggs in two to three baskets rather than one Putting your eggs in one basket and then keeping the basket in a safe, not to be taken out until all the eggs hatch Not putting your eggs in one basket, rather putting them across many baskets of different shapes and sizes

In order to calculate your future needs, click here : Retire Rich Calculator


The information being provided under this section ‘Investor Education’ is for the sole purpose of creating awareness about Life Insurance and for their understanding, in general. The views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. Many of the statements and assertions contained in this section merely reflect the views, opinions & belief of the individual writers and therefore BALIC does not in any manner guarantee the completeness, efficacy, accuracy or authenticity of such information. This information is not intended to be an offer or solicitation for the purchase or sale of any financial product or instrument. Before making any investments, the readers are advised to seek independent professional advice, verify the contents in order to arrive at an informed investment decision.

By Ranjan Dutt, AVP Marketing – Bajaj Allianz Life Insurance



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