Ever since the Long term Capital Gains Tax (LCGT) has been introduced, there has been a shift in the investment choice of the investors. The most preferred investment plan like the Mutual Fund has been replaced with the popular plan of today, Unit Linked Insurance Plan (ULIP). While the debate between mutual funds and ULIPs can be never-ending, ULIPs have been winning hearts with its numerous features and benefits.
Investment in ULIPs not only ensures the protection of your family but also the creation of wealth for the investors. Their provision for insurance and investment under a single plan makes a ULIP Plan all the more appealing to the masses. However, before you make an investment decision, learn all the differences between the two products and then, make an investment smartly:
What is the difference between ULIPs and Mutual funds?
Mutual funds and ULIPs can be differentiated in numerous ways. This is because both these products provide its customers with their own set of perks. It is advisable to consider the pros and cons before making an investment decision. Hence, take a look at these differences which will make your decision simpler:
|Scope||Investment||Investment & Insurance|
|Tax Benefits||Does not allow deductions in taxes||The premium is eligible for ULIP tax benefits under section 80C of the Income Tax Act, 1961|
|Liquidity||Allows withdrawal of funds within a year||Permits partial withdrawal within the lock-in period of 5 years|
|Fund Management Charges (FMC)||The rate of FMC is higher i.e. 2.5%||The rate of FMC is lower i.e. 1.35%|
Why ULIPs are better than mutual funds?
The key factor to keep in mind while investing in an investment policy is flexibility. Under ULIPs, you have guaranteed flexibility which in turns allows you to switch between the multiple options of funds. Based on your risk appetite, you can select either equity funds, debt funds or balanced funds. However, if you opt for a mutual fund, the switching policy won’t be applicable any longer.
The reasons why an investment in ULIPs is considered lucrative is because of the introduction of LCGT. With the help of tax savings benefits and lower costs, ULIPs have crossed the label of being ‘expensive.’ However, this was no longer the case earlier as a ULIP Plan was known for its higher charges. The best way to ensure affordability is by investing in online ULIPs. Online ULIPs do not incur policy administration charges and fund management charges.
One of the major benefits of a ULIP Plan is its tax benefits. ULIPs provides its policyholders and the nominees with tax benefits on premium, maturity benefit, and death benefit. However, provision for taxes is not applicable in terms of mutual funds. Moreover, these mutual funds deduct 10% of LTCG tax on capital gains that exceed a limit of Rs. 1 lakh.
Typically, a ULIP Plan will provide you with a lock-in period of 5 years. Investment in a ULIP ensures long term gains due to its lock-in period. In order to allow the growth and protection of your funds, see to it that you invest in a ULIP Policy. For an investor to yield maximum benefits on their investment, it is important to stick to an investment plan for the longest period of time.
- Liquid assets
Another important factor to keep in mind before investing in policy is liquidity. As an investor, you must be able to liquidate your funds as per your wish. There are certain ULIP Plans that may allow the option of liquidity wherein you can redeem your funds in times of need. These ULIPs offer you with partial withdrawal over the due course, before the maturity date.
Now that you have these 5 reasons which label ULIP as a better option than mutual funds, then invest in the right plan for optimum benefits. It is highly recommended for people with long term goals in order to enjoy the benefits of ULIPs for the longest period of time. So what are you waiting for? Invest in the best ULIP Plan for yourself today.