ULIP vs Mutual Fund: Know The Difference Before You Invest

31st July 2018
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For many of us, the most important life goal is to provide a stable and secure financial future to our family. Hence all our actions and efforts are directed towards this prime directive.
Different people will have different answers as to how they are going to meet their important life goals. But the common underlying theme is to plan your investments in such a way that the returns are optimized to meet your life goals.

Financial markets have come a long way and today there are buffet of investment avenues available in the market. Depending on financial goals and needs one can choose the right product that will help them secure their financial future.
Two of the most popular investment options are Unit Linked Insurance Plan (ULIPs) and Mutual Funds. Given the similarities between the two, it is not surprising to find individuals confuse one for the other.

A simple ULIP vs. Mutual Fund comparison should help clear the doubts in the minds of investors regarding these two investments.

Features of ULIP

Features of MF

ULIPs are investment options where a part of the premium is allocated towards providing life cover, and the rest goes for investment in the capital markets with the purpose of wealth creation. Mutual funds are focused mainly on wealth creation with no life cover attached to it.
ULIPs offer tax benefit under section 80C for premiums paid. The Income Tax Act, 1961 also provides exemption on partial withdrawal and on maturity amount under section 10 10 (D) subject to fulfillment of conditions therein. Mutual funds too allow such deductions under section 80C, where investment is done in ELSS. Proceeds of MF’s are taxed as Capital Gains
ULIPs are cost effective. IRDA has now capped all the charges leading to the proposition being more customer centric Mutual Funds levy fund management charges (FMC) which is on an average 2.5% in equity funds. Also entry & exit loads, transaction charges etc. are deducted from the invested amount.
ULIPs offer investors the flexibility to switch between funds multiple times in a year. Hence it helps to plan your asset allocation better, depending on changing market outlook, without bearing additional charges and tax incidence. In mutual funds also you can switch by exiting from one scheme and entering to another scheme, but any switches attracts capital gains in MFs, plus STT (for equity funds), and also exit load if applicable.

Due to the long term orientation of ULIPs (minimum 5 year lock-in), tax-advantages mentioned above and life cover protection provided, ULIPs make for an attractive investment proposition for investors. When it comes to achieving life goals such as child’s education, worry-free retirement, etc., ULIPs are a good investment option in an individual’s investment portfolio.

Bajaj Allianz Life Goal Assure is earmarked to accomplish such goals. Unique features of this value-packed goal based ULIP are Return of life cover charges, where it offers a return of mortality charges on maturity and Return Enhancer, where on maturity, the policyholders, who opt to receive the maturity benefit in instalments (instead of lump-sum) receive an additional 0.5% of each due installment. There are also additional features like Fund Booster*and Loyalty Addition** for paying premiums regularly and staying invested.

Bajaj Allianz Life Goal Assure also provides flexibility to choose from 4 investment strategies according to your investment style to accomplish your life goals.
With the choice of 8 funds under Investor Selectable Portfolio strategy, one can actively manage their investment by allocating the premium among the funds and switching between the funds without any tax liability. It also offers Tax benefits to policyholders under Section 80C and Section 10 (10D) of the Income Tax Act, 1961 subject to conditions mentioned therein.
Hence, with all its combined benefits, Bajaj Allianz Life Goal Assure helps one to accomplish important life goals without any worries.

*for policy term 10 years or greater
**for Annualized Premium of Rs 5 Lakhs or more & for policy term 10 years or greater

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