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ULIP vs. MF – A Comparative Analysis

Monday, May 28, 2018 | Category : Investments | 0 Comments
National-Pension-Scheme
ULIP
A Unit Linked Insurance Plan (ULIP) is a life insurance product that offers the investment option along with a life cover.

ULIP = Insurance (Life Insurance) + Investment (Mutual Funds)
It is a market linked product and the risks associated with the investment are to be borne by the policyholder. Investor can also choose a life cover as per the specific needs.


MUTUAL FUND
Mutual funds are a sole investment product. The primary aim of a Mutual Fund is wealth creation. Equity, debt or hybrid, it offers different investment options to suit various risk profiles.

The below table shows a comparison between the returns of ULIP and Mutual Funds for 5 and 10 year Durations.

Category 5-year returns (%) 10-year returns (%)
ULIP MF ULIP MF
Large Cap 14.11 14.35 9.64 9.45
Mid Cap 23.17 25.10 15.03 15.14
Multi Cap 11.59 17.93 6.81 11.68
Conservative Allocation 8.52 9.20 8.54 8.65
Moderate Allocation 9.78 14.53 8.64 11.06
Long-Term Government Bond 6.17 6.63 8.15 8.03
Short Term Bond 7.02 7.52 7.84 7.89
Ultra Short Term Bond 7.25 7.98 7.90 7.75


BREAKDOWN
Differentiating Factors ULIP MF
Primary Objective Insurance+ Investment Pure Investment
Flexibility Limited Very Flexible
Charge Many Hidden charges are there Exit load (1%) only if redeemed within a year
Lock-in Period 5 years No Lock- in period Except ELSS Funds (3 years)
Expense Ratio High Expense ratio Low expense ratio as upper limit is set by regulator
Risk involved Less risky High risky

  • It can be evidently observed that MF has clearly outperformed ULIP returns in most of the categories.
  • For 5 year period, Mutual Funds have provided better returns in every category as compared to ULIPs. There is a marginal difference in returns in the large cap category in both the durations with ULIPs trailing MFs but providing better returns for 10-year period.
  • Investing for a longer duration such as 10 years, the returns earned in a ULIP scheme is very close to those earned by investing in mutual fund scheme.
CONCLUSION
    • The return from a ULIP will start dropping as the age of the investor increases due to higher mortality charges. In mutual funds, none of these will matter.
    • Also we should never forget the basic rule which says never mix insurance with investment as both these serves different purposes. The purpose of Insurance is to give protection to the members of the family in case of death of the insured whereas investment helps you build your wealth.
    • But if you are already invested in ULIP then it will be better to take a term insurance plan to have sufficient life cover.

    Contact for investment advice:
    Fort office: Ashish Machhar- 40936015, Pravin Shah- 40936053,
    Dipesh Savla - 40936096, Manan Divan - 40936091
    Kalpesh Shah - 40936045
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Disclaimer:
Mutual Funds are subject to market risks please read the offer document carefully before investing.

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Vatsal Shah | Head - Wealth Management
He has been in the field of financial advisory for more than 8 years. His strength is building relationships and providing innovative solutions to investments. His work involves managing the wealth management department for Mutual Funds, IPOs, Bonds and Insurance.

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