ULIPs and mutual funds are two popular yet distinct investment avenues, each coming with its unique set of benefits and drawbacks. Know which one is better for your individual needs and preferences.
Beyond the traditional means of investment, ULIP and SIP have recently emerged as two potent modern options for investment. These two investment options typically offer a greater return as compared to fixed and recurring deposits and can help meet your short-term and long-term financial goals with the ease of making small periodic investments.
Both these investment ventures seem to have several similarities. However, taking a closer look at them, both of them also have multiple distinct features. Where ULIP offers the benefit of insurance and investment in one, and SIPs are highly flexible and allows the investor to tap into all possible venture related to mutual fund investment.
So, if you are planning to invest in either or both, then getting a fair idea of ULIP vs SIP is highly important for you. We will attempt to understand both of these ventures in detail today and draw a proper comparison to help you pick one. Let’s get started.
Before moving on to the discussion of ULIP vs SIP, let's understand the benefits and features of ULIPs first –
One of the most significant advantages of ULIP is that it gives you the flexibility to choose your preferred asset class per your risk appetite. For example, you can select equities if you wish to invest aggressively. If you like moderate-risk options, debt funds are a suitable option for you. You also have the option to switch between various funds within the same policy when ULIPs are concerned.
With a ULIP investment plan, you are entitled to opt for partial withdrawals after the compulsory lock-in period in case of emergencies. However, you can only withdraw a certain sum according to your needs. While there aren't any rigid guidelines to follow for early withdrawals, huge lump-sum withdrawals can lead to policy termination in certain cases.
You can enjoy the dual benefits of both investment and insurance with ULIPs. Here, a portion of your premium goes towards investment while the other is set aside for the insurance policy for building the death benefit.
You can easily modify your investment portfolio as well as insurance benefits when a ULIP is concerned. A ULIP policyholder can top-up to their initial assured sum to customise the plan benefits and or change the investment portfolio as per their changing needs.
Now that we have understood the benefits of a Unit Linked Insurance Plan, let’s move on to the features of Systematic Insurance Plans aka SIPs -
Now that we have understood the basic features and benefits of SIPs and ULIPs, let's shift the focus to the ULIP vs SIP discussion. Here is a comparative analysis of these two investment options –
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Ans: The following documents are to be provided to invest in mutual funds –
Ans: While mutual funds are less risky compared to direct stock investments, they too involve a certain degree of risk like all investment options as the money is invested in equity, bonds, and other investment options. Moreover, the money invested in such funds is not federally insured. For this reason, it is advisable to understand the key aspects of investment and follow the diversification principle to minimise risk.
Ans: Since mutual funds are liquid assets, they can be sold and purchased anytime. However, before trading in them, it is recommended to read the policy document for exchange fees or redemption fees.
Ans: Debt funds are suitable mutual funds for people looking for safe investments and fixed returns at the same time. The money is invested in debt instruments like government bonds, debentures, and other fixed-income assets.