ULIP or Mutual Funds - Which is Better?

There are a wide range of investment avenues that can help in wealth accumulation, including ULIPs and mutual funds. While ULIPs offer the flexibility of premium payments, mutual funds provide higher liquidity.

 

While both come with their set of unique benefits, knowing the difference between ULIPs and mutual funds can help you choose the right one. 

 

On Bajaj Markets, you can invest in ULIPs with a small amount starting at ₹2,500 per month. Apart from this, you have the option to choose between two investment portfolios.

Mutual funds allow you to pool your funds with other investors to invest in a diversified set of securities. They offer complete transparency since Asset Management Companies (AMCs) must regularly update you regarding the fund's performance. This is in accordance with SEBI regulations.

 

Mutual funds work in the following way:

• Each investor holds shares, and the fund calculates its total value based on the net asset value (NAV)

• Skilled portfolio managers oversee these funds to enhance the expected returns and fulfil the fund's objectives

• These funds invest in various stocks, bonds, or a mix of both

• They generate returns through capital appreciation, interest income, and dividends 

• You earn returns periodically, as per the fund’s policies

ULIPs are a hybrid financial instrument that combines the benefits of insurance as well as investment. They allow you to invest to meet your long-term investment goals while getting a life insurance cover.

 

Here is how ULIPs work:

• You need to pay a premium amount via monthly, quarterly, semi-annual, or annual instalments

• The premium is divided into two parts: one is invested in a fund of your choice, and the other towards a life insurance plan

• You can select the type of fund you wish to invest in, between equity, debt, or hybrid funds

• Professional fund managers manage these funds based on your investment goal and risk tolerance

• The returns on investment depend on the performance of the market and the chosen fund

Gauging the difference between ULIPs and mutual funds can help you make the right choice. Refer to the following table to know how they differ:

Investing is an essential decision that requires adequate research and consideration. Keep the following factors in mind while investing in these avenues:

• Financial Objectives

Consider your investment goals to understand if these options will help you meet these requirements.

• Risk Tolerance

Assess your personal risk tolerance and compare the risks associated with each investment option. This will help you see if they match your risk appetite.

• Investment Duration

Based on your investment goals, check the investment duration and lock-in period for ULIPs and mutual funds. Based on this information, you can decide which option will best align with your goals.

• Fees and Charges

Another key factor that influences your potential returns is the associated charges. Pay attention to the charges that come with both options and decide.

• Flexibility

Analyse the level of flexibility you can enjoy with each investment option. This will help you choose an avenue based on your flexibility and liquidity preferences. 

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