As an investor you will be followed around by this big question. Unit Linked Plans or Systematic Investment Plans – which one is better? The simple answer is ULIP. Want to know why? Read our guide to understand why you should go for ULIPs over SIPs anytime.

Systematic Investment Plan

A systematic investment plan (SIP) helps you invest a specific amount of money in mutual funds at regular intervals of time. This could be on a monthly, quarterly or yearly basis. In other words, SIPs are a planned approach to help you earn a large corpus of wealth over a long period of time.

Unit Linked Insurance Policy?

A Unit Linked Insurance Plan (ULIP) is quite unique because it offers the twin benefits of insurance and investment in a single package. A ULIP plan gives you life cover and also the opportunity to invest in various capital market investment options such as stocks and bonds. This gives you the opportunity to earn market-linked returns while you simultaneously take care of your protection needs.

Investing in Unit Linked Insurance Plan is a great way to inculcate investment discipline in addition to long-term wealth creation.

 

ULIPs vs SIPs

After you take your monthly expenditure into account, it is possible that you only have a limited amount of money to invest for the future. So, where you put that money is extremely important. You need to find the best possible avenue to invest and reap high returns. Worry not, we will give you a list of factors to show why ULIPs are a better option than SIPs.

  • Benefits

The fundamental difference between ULIP and SIPs is that only a ULIP offers life cover. Mutual fund SIPs do not offer this facility. So, when you invest in a ULIP, a portion of the money goes into an investment pool just like mutual funds. The insurance company gathers the money from all investors and invests it in various avenues in order to generate high returns. The remaining portion of the premium is put into a life cover.

 

 

  • Risk Assessment

The fact that mutual funds are pure investment products makes them a riskier alternative. This is because the portfolio is exposed to a greater degree of risk in order to generate high returns. ULIP, on the other hand, are primarily insurance products. As a result, the fund managers try and avoid high risk strategies that could negatively impact your invested capital.

  • Fund Management Costs

At 2.5% or more, the fund management charges for mutual funds are quite high. In addition, there are a bunch of other charges such as entry load, exit load and recurring charges. In contrast, the fund management charges for ULIPs are much lower at around 1.35%.

  • Improved Tax-saving Features

Equity Linked Saving Scheme (ELSS) is the only mutual fund that offers tax-saving opportunities. But in case of ULIPs, premium amount up to Rs. 1.5 lakhs can save taxes under Section 80C of the Income Tax Act, 1961.  

ULIP Features

 

  • Triple Benefits
    ULIPs are insurance c** investment products. A certain portion of the premium you pay goes in providing life cover, while another portion is invested in the markets to earn returns and build wealth. ULIPs offer triple advantages of life cover, wealth-creation and tax benefits.

 

  • Choosing of Preferred Asset Class
    ULIPs give you the benefit to choose your preferred asset class based on your risk appetite. If you are an aggressive investor, you can choose equities. On the other hand, if you are a moderate investor, you can choose balanced or debt funds. You can also switch between funds within the ULIP.

 

  • Partial Withdrawals
    ULIPs allow you to make partial withdrawals after the mandatory 5-year lock-in period. You can withdraw an amount as per your needs and goals. Though there are some rules on the amount you withdraw, make sure you don’t withdraw so much that it leads to policy termination.

 

 

 

 

 

 

 

 

 

SIP Features

 

  • Habit of Disciplined Savings- SIPs inculcate the habit of disciplined savings, essential for long-term wealth creation to address various goals. Through auto-debit facility, a certain amount is deducted from your bank account each month and invested on your behalf.

 

  • Start with a small amount- The beauty of SIP is that you can start with a small amount, as low as Rs. 100 or 500. With time, as your income increases, you can increase the amount accordingly to build the desired corpus. When you stay invested for a long period, you gain from the power of compounding. Assuming returns of 12%, a monthly investment of Rs. 1,000 for a period of 10 years would grow above Rs. 2.30 lakhs.

 

  • Protect against market volatility- Since SIP investments are done for a long period, it protects you from market volatility. It protects your corpus from a significant dip when markets turn sour. A dip in the corpus can affect your financial goals.

 

Life Cover Provided by ULIP

While mutual fund is not equal to a life cover, a ULIP has a life cover.

This is where ULIP has a certain advantage. However, for investors who seek capital appreciation, there should be no life insurance. This is because they already have a big term plan for the protection of my family.

Conclusion

Both ULIPs and SIP have their own advantages. If you wish to obtain life cover along with wealth creation, ULIPs are your best bet. On the other hand, if you want wealth creation that beats the effects of inflation, Mutual Fund SIPs are your preferred partner.

All in all, when the advantages are weighed, the scales tip favourably in the direction of ULIP. So, if you want to invest for the long-term where you can earn good returns, enjoy tax benefits and a life cover, ULIPs are the way to go.

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