Wondering where to invest-ULIPs vs mutual funds? Read on.

When you’re looking for investment vehicles for building wealth in the long-term while collecting tax benefits, Mutual Funds (MFs) and Unit Linked Insurance Plans or ULIPs emerge as two options. However, it’s crucial to understand how MFs and ULIPs work to choose a suitable instrument.

ULIP plans vs mutual funds: How do they work?

#1 ULIPs

ULIP allows you to avail of the benefits of an investment instrument and a life insurance cover under one plan. Here, you use a part of the premium to pay for life coverage, while the rest is invested in various market instruments, including bonds, stocks, etc.

#2 Mutual funds

Mutual funds have become the most popular investment avenue amidst risk-averse and risk-taking investors alike. The investment vehicle is essentially a trust where funds from individual and institutional investors are pooled together to invest in equity securities and debt instruments.

Fund managers offer professional management and make investment decisions on your behalf. They also ensure that the vehicle’s investment objective aligns with that of the investors.

With Tata Capital’s Moneyfy app, you can indulge in goal-based investing and choose MF schemes that cater to your short and long-term financial goals.

Here, you get regulative safety from the Securities Exchange and Board of India (SEBI), and the MF house is responsible for tracking market movements, conducting research, and fund management. Besides, when you invest in an MF comprising various assets, your investment is diversified, and you don’t put all your eggs in one basket. Your MF scheme is more likely to outperform other investment vehicles with professional investment management.

Difference between ULIP and mutual fund

#1 Structure

A key difference between ULIPs and MF schemeis that ULIPs are complex investment products that comprise portfolio allocation and risk management, and their structure isn’t as transparent. In parallel, MF schemes extend transparency as you know about the fees you’re being charged, plus where your money is parked.

Additional Read – 5 Tips to grow your wealth while saving taxes

#2 Charges

When you make a Unit Linked Insurance Plan investment, you are charged various fees, such as premium allocation charges, fund management fees, administration charges, mortality charges, and more. On the other hand, there’s no entry or exit fee on liquid MF schemes. This means that if and when you choose to redeem your investments, you can. On top of that, the parked funds will be credited directly into your bank account within a few hours.

#3 Liquidity

ULIPs typically offer a lock-in period of 5 years. Therefore, you need to keep investing in the Unit Linked Insurance Plan for 5 years. If you choose to terminate the policy, you will be required to shell out surrender charges, which can be expensive.

Contrarily, mutual funds offer you flexibility in entering and exiting the market as per your investment choices and financial goals.

Additional Read – Important Tips to Pick Top-Trending Mutual Funds

Over to you

So, when it comes to ULIP vs MF, and you are thinking about wealth creation, mutual funds emerge as the clear winner. However, it’s crucial to understand your risk appetite, investment horizon, and financial goals before investing. Start a hassle-free investing journey today with Tata Capital’s Moneyfy App. Download today!

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