ULIP and Mutual fund

People often get confused in selecting ULIP or MF because they think both are same . lets understand the difference between these two

ULIPS is an insurance product which gives life cover and also invests in stocks , bonds and other money market instruments .

Mutual funds is a pure investment tool without any life cover . its sole purpose of investment is to generate returns

Liquidity  ULIP has a lock in period , MF dont have any lock in (except one is looking for tax saving option) . Mutual fund offers better liquidity (unless you invested in tax saving fund which has 3 years lockin)  and can be withdrawn anytime subject to some charges , whereas ULIP has different rules . For the withdrawal of investments from ULIPS you need to be invested for 5 years , even if you wish to discontinue your investments in ULIP say i nthe third year of investment , your invested money will be available to you only after 5 years from date of buying ( this is the drawback)

Charges : As you age, the cost of life insurance increases (unlike term insurance).  In addition, there is a fund management charge taken from the fund value. Currently, this charge is well below that of regular mutual funds and a touch below or equal to direct mutual funds. There may be other charges like premium allocation and policy administration as a percentage of annual premium

From ages people always compare ULIP and MF on cost basis , but lets understand in different way . If i have invested in X fund and this is not performing well and i want to exit , immediately i can say bye to my fund  and invest in other fund , this is the beauty of Mutual fund but this is not possible in ULIPs , investing in ULIP is like amost a  life time commitment (it is meant to be marriage) literally costs to be considered till you withdraw (dont forget ulip costs increases as you age) . purely its a luck your ULIP performs well as no buyer checks value of these as they prone to check daily NAV of mutual funds , if ULIP doesn;t perform well then you are trapped . 

Do not think about 10% tax when you switch from one fund to other , it is actually better than to get stuck in a bad investment.

Stay away form ULIPS , not because of their cost but because you will be trapped  if they underperform 

Get a better control of your portfolio and flexibility , then this tax is not a big issue at the time of switching. 

Thumb rule of investment , Dont combine Insurance with investment 

For better inflation adjusted returns invest in Mutual fund and for life cover take a Pure term plan ..


Conclusion : ULIP brings true meaning of " Dont combine Insurance with Investment" . In simple words dont marry a fund manager and sit for long term even your fund is not performing well , just chuck the fund and shift to other . 

do reach us on pcswealthadvisers@gmail.com


PCS CAPITAL were first generation entrepreneurs in financial services . It was formed with foundation stone for creating long-term wealth for the investors through various financial products like Mutual fund s , Insurance , Fixed deposits and Alternate Asset products . We help you understand your financial objectives and make appropriate plan to realise them with proper risk management. rnYou can leave your contact details for professional help in your investment journey.

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