ULIP or Mutual Fund-choose the right tool to build strong investment portfolio

You can always be spoilt of investment choices with a list of various financial products such as life insurance, fixed deposit, postal deposit, mutual fund, stocks and others. To add fuel to your desire, the makers of the financial products are constantly innovating their product portfolio to suit your needs. . In addition, they are promoting their products by making extensive calls to the customers. You may get tempted to buy such products under the influence of marketing push made by such financial institutions. But, you must resist the temptation and start analysing the investment products in detail before you buy them. Below is the overview of ULIP and mutual fund along with their comparison.

Overview on ULIPs

Unit Linked Insurance Plan (ULIP) made a strong debut in the market, which was on the upswing. However, despite being an insurance product, ULIP exposed investors to wide-ranging risk due to its market-linked portfolio. As a result, investors started losing money in a heap. Apart from the market downturn, the higher fee also led to the failure of ULIP, and thus it got vanished from the market. However, the new ULIP has come with certain changes made to its structure. The new product may be considered safe but the return is low, much like what had been the case earlier.

Overview on mutual funds

Mutual fund, a pool of sum invested by different investors, is professionally managed by fund managers who systematically divide the investment in various categories like stocks, bonds, money market instruments, etc. You can take several mutual funds in India depending upon the degree of risk, such as equity oriented mutual funds, hybrid funds or say balanced funds. Oriented mutual funds invest largely in equities, while hybrid funds invest in equities as well as debt such as bonds and fixed income securities.

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Comparison between Mutual Fund and ULIP

FactorsMutual FundULIP
Risk ExposureDegree of risk is high with equity fundsLess risky as it is an insurance product
Potential of ReturnsRate of return is high with equity funds topping the list among mutual fund types Low risk implies low return
Lock-in PeriodLock-in period of 3-5 years Lock-in period of 3 years
LiquidityMore liquid product as it is invested in various securities Less liquid
Charges1%-2% Above 3%
Data AvailabilityAs mutual funds have been there in the market for a long time, you can see the data showing their history of returns to the investorsNot much data available

Important points to be kept in mind

  • Both mutual funds and ULIPs offer a wide range of products on the basis of risk profile
  • An investor must decide about the investment portfolio after evaluating his/her risk profile and investment period
  • If you have a bigger investment bucket and carries a high-risk appetite, then you should opt for ULIPs or equity oriented mutual fund with greater exposure to equities
  • Investors, who have taken ULIP, must buy term insurance to get adequate protection
  • Term insurance products refer to an insurance plan where the payment of a lump sum is made to your family members in the event of death, critical ailments, etc.

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Fullerton India 14.00% - 33.00%
HDFC Bank 11.25% - 21.25%
ICICI Bank 10.99% - 18.40%
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Kotak Bank 10.99% - 20.99%
RBL 13.00% - 18.00%
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Tata Capital 10.99% - 18.00%
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Citibank 8.40% - 9.20%
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Kotak Bank 8.60% - 8.70%
DHFL 9.05% - 9.95%
Reliance Home Finance 8.75% - 10.00%
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