What make a ULIP different from Mutual funds?

When I deal with ULIP, there is a common question I am facing from my friends, colleagues and others. What are the difference between ULIP and a mutual fund? A common myth is, ULIP is very costly and mutual funds are less costly and both are working similar way. This is true. I agree. But compare with mutual funds, ULIP has its own advantages. Following are some highlighted features ULIP have over mutual funds.

1. Unique two in one facility: The very first and most important advantage of a ULIP product is, it’s ability to provide life insurance as well as disciplined investment opportunity to an investor. ULIP is a two in one product packed with life insurance coverage and investment exposure.

Mutual funds giving you a pure investment opportunity but, no insurance cover available. This is a unique advantage with only ULIP products. This feature enables an investor to have regular savings habit as well as insurance cover on life.

2. Investment flexibility using multiple investment options: ULIP is the only product providing flexibility to invest your money across various funds. You have options to select an equity fund or a balanced fund or a pure debt fund or any mix of these funds to decide and invest your money. This feature enables you to properly balance your money across funds by investing different instruments like equities, debt instruments, money markets etc depends on your risk profile and investment goal.

A mutual fund investor required to choose a fund from any available category to invest the amount he is willing to. There is no option available to convert or switch money from this fund to another one. If you want to do such with mutual funds, you should close the first one and make fresh application for new one.

3. ULIP providing the facility of Rupee Cost Averaging to invest money regularly and systematically. Mutual fund has option to have Systematic Investment Plan similar to this. But with ULIP, you can select this option even annual mode and that is not available with Mutual Funds. Also, people can add there investment amount as Top Up premiums whenever they feel that it is a good time to invest. Mutual fund is not providing the facility. ULIP also has the facility to pay premium in Monthly/Quarterly mode compare with Mutual funds and additionally Half Yearly and Annually mode also available.

4. Tax benefit: This is an additional and important advantage of ULIP’s compare with mutual funds. In the mutual fund world, only ELSS products, Equity Linked Saving Schemes, providing tax benefit to investors. The share of ELSS product is very small of only 5% in the mutual fund world. Investment in any ULIP product enable an investor to plan tax efficiently.

There are more features that is unique to ULIP product over similar investment products like mutual fund. You required to dig more deep to identify these features. For an investor, above mentioned information are enough to go further with a ULIP product.

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I have a question to readers: Do you think ULIP outperform to mutual funds or mutual funds outperform to ULIPs? Comment to share with others