ULIP Vs Mutual Funds

ULIP(Unit Linked Insurance Policy) and Mutual Fund(MF),both are Market linked Investment instruments availble retail Investors.In this session,lets see in what way Mutual Funds & ULIP s similarities,differences &  how far both are Best Investment option.

ULIP and Mutual Fund investments offer investors an exposure to a market linked portfolio giving an opportunity to earn positive returns.Both these Investment instruments Clearly different,But these products are very similar in their functioning and structure. These instruments offer investors an exposure to a market linked portfolio.

Similarities

ULIP S and Mutual Funds are Similar in many ways,they are

NAV(Net Asset Value)

Capital Market Exposure

Risk

Systematic Investment Option

NAV(Net Asset Value)

The NAV of a MF or ULIP is the market value of each unit of the scheme.It s Calculated on a daily basis,an NAV is the total of the assets, securities, cash and any accrued earnings (after deducting liabilities) and then dividing the remainder by the number of units outstanding.

Investment made in the both the instruments as Units.Units are allocated on the basis of a net asset value (NAV).It is commonly used as a measure to understand the profits that have been generated from the investment.

The Value of Investment calculated by Units held by the investor & NAV of the unit of a scheme.Through NAV only,People can measure their Profit/Loss in the Investment.

Capital Market Exposure

ULIPs  and MF s expose investors indirectly to the capital market.If People doesnt have expertise to invest in the market,get an opportunity to invest across different asset classes of debt, equity or a balance of the two by Various Funds offered by the Companies/Fund Houses.

Risk

ULIP s & MF s both are directly/indirectly involved in market,so there s chance of Risk too the Invested money..The returns generated from a MF and ULIP greatly depend on the performance of the underlying scheme that has been invested in. So whether it is a debt funds for the risk averse or equity for those who can bear some risk, both the options are definitely fraught with risk.

Systematic Investment Option

Investments in ULIPs and MFs could be done with a onetime lump sum payment or systematically at periodic intervals. A systematic investment takes advantage of market volatilities yielding positive returns.

Differences

In these cases,both investment instruments looking similar in a way,but Both are differ in certain cases.

Nature of Product

Investment Amount

Different Regulatory body

Tax Benefits

Expenses

Portfolio Disclosure

Degree of Risk in Investment

Asset Allocation Modification

Liquidity

Nature of Product

Mutual funds are solely an investment product.The primary aim of a MF is wealth creation. Equity, debt or Balanced,it offers different investment options to suit various risk profiles.ULIP is a product bundled with life cover,wealth creation as well as tax saving.

Investment Amount

ULIPs Investment amount determined by the investor and can be modified as well.Mutual Fund Minimum investment amounts are determined by the fund 

houses.

Different Regulatory body

ULIP s and Mutual Fund s,both are regulated by different regulatory bodies.ULIP are regulated by Insurance Regulatory Authority of India(IRDA).Mutual Funds are regulated by Securities Exchange Board of India(SEBI). 

Tax Benefits

Investments made in all ULIP s are enjoy the Section 80C Tax Benefit.In Mutual Funds,Section 80C benefits are available only on investments in tax-saving funds(Equity Linked Saving Scheme)

Expenses

Expenses incurred in a MF are much lower than expenses in ULIPs. 

Mutual fund charges 

1.Entry load, 2.Exit load and 3.Recurring charges.
Entry and exit load are onetime expenses ranging from 1% to 3%.Recurring charges are towards,fund management,cost of sales & marketing and administration,and is around 2.5%. 

In ULIPs, the upfront charges are much higher. Most of the charges are collected in the initial three to five years.

So,in ULIP s No upper limits, expenses determined by the insurance company.Mutual Funds Upper limits for expenses chargeable to investors have been set by the regulator.

Portfolio Disclosure

ULIPs Portfolio Disclosure is not a mandatory one.In Mutual Funds,Quarterly disclosures are mandatory.

Degree of Risk in Investment

ULIPs are primarily insurance products. Fund managers of ULIP therefore are careful and use less aggressive investment strategies. This makes ULIP less risky than mutual funds. Mutual funds being pure investments products have their portfolios exposed to much more risks to be able to generate superior returns.

Asset Allocation Modification


In ULIPs Generally permitted for free or at a nominal cost.In Mutual Funds Entry/exit loads have to be incur by the investors.

Liquidity

ULIPs typically have a lock-in period of five years during which time units cannot be sold. Mutual funds generally do not have a lock-in period (except in the case of closed-ended funds which have a lock-in period of normally three years) and are more liquid than ULIP, as they can also be widely traded in the market.
As Investment point of view Mutual Funds are better performer than ULIPs.Because ULIP Incurring expenses more than that of Mutual Funds.Insurance to be part in our portfolio,ULIP s can choose,ULIP likely to suitable for Long term.Now a days,Traditional plans giving more returns than ULIP s.For Wealth creation point of view Mutual Funds are better option.