ULIP Vs MF – Charges, Returns, Taxability and More

While choosing between two market-linked investment options, Unit-Linked Insurance Plans and mutual funds are often compared. Due to the obvious benefit of gaining a life cover with ULIP, many individuals have turned towards this unique financial tool. But which one would you pick when both of them are compared based on several crucial factors? Find out the investment option that best suits your requirements.

What Are Unit-Linked Insurance Plans?

A Unit-Linked Insurance Plan, or popularly known as ULIP, is a policy that offers a life cover along with an investment component. After deducting applicable charges, your premium gets invested in the funds of your choice. So, depending on your risk appetite, you can opt to invest your money in equity or debt funds for lucrative ULIP plans returns.

The insurance plan has a lock-in of five years, where you cannot withdraw any funds. In case something was to happen to you, the insurer would pay out a death benefit to your family to safeguard their finances.

What Are Mutual Funds?

A mutual fund is an investment tool where money from several investors is accumulated and then invested in various assets to generate returns. The financial professional called as the fund manager oversees and manages the investor’s money. The pool of money formed is then used to invest in securities such as bonds, stocks, etc. and not just in a single share. The fund manager analyses and researches the best-performing stocks to avail higher returns.

ULIP Vs Mutual Funds

Compare both these investment options on various aspects such as returns, flexibility, charges, tax benefits, and more:

  • Charges

ULIP investment has various charges associated with it such as fund management charges, premium allocation fees, fund switching charges, administration charges, etc. These are deducted from the premium amount and the remaining is then invested.

While investing in mutual funds, you must pay for the fund management, fees for initial investment, charges for maintaining the account, entry and exit fees, etc. Thus, there are numerous charges involved with investing in mutual funds as well.

  • Returns

Returns on both these investment types are high as expert fund managers manage them. ULIPs can offer moderate returns as only part of the premium is invested in the selected funds.

The returns cannot be guaranteed with mutual funds, as the risks involved are more in equity funds. But with debt mutual funds, you can earn moderate income.

  • Tax Benefits

With ULIP, you can claim the premium paid towards the policy under Section 80C of the Income Tax Act. The amount is capped at INR 1.5 Lakh per financial year. You can also claim the maturity and death benefit under Section 10(10D) as tax-free. But for the maturity benefit to be tax-free, the premium should be lower than INR 2.5 Lakh. If it is higher than this, then the corpus shall be treated as capital gains.

In mutual funds, investing in Equity-Linked Savings Scheme (ELSS) enables you to claim tax benefits under Section 80C. No other mutual fund scheme offers tax benefits.

  • Flexibility

Investing in ULIP offers you the flexibility to choose between fund types based on your risk appetite. You could be willing to take more risk today, but in case you change your mind, ULIP allows switching funds.

Mutual funds don’t allow you to switch funds like in ULIPs.

With this, you can now understand how ULIPs offer you an upper hand with several features and benefits. Along with a life cover, you can avail tax benefits and high returns with long-term investment. To estimate your ULIP plans returns better, you can now use the simple ULIP calculator available online.

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