ULIP vs MF A Comparative Analysis

   

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.

Disclaimer:
Mutual Funds are subject to market risks please read the offer document carefully before investing.

Past performance and any forecast is not necessarily indicative of the future or likely performance of the mutual fund. The value of mutual funds and the income from them may fall as well as rise. Opinions expressed herein are subject to change without notice. This information is NOT to be construed as an offer or solicitation for the subscription, purchase or sale of any mutual fund. Investors should seek for professional investment, tax, and legal advice before making an investment or any other decision. We shall not be liable for any direct or indirect losses arising from the use thereof and the investors are requested to use the information contained herein at their own risk.

For complete Research Disclaimer, https://goo.gl/2DCfJZ


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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