ULIP vs SIP
Table of Contents
We often plan to invest to accomplish various future life goals, such as education, marriage, traveling, and much more. However, the various investment products like systemic investment plans (SIP) and unit-linked insurance plans launched in the market often confuse us. At the time of investing, we struggle to understand which investment is better: ULIPs or SIPs. Isn’t it? Don’t worry, we’ve enumerated everything you need to know about ULIPs and SIPs. Continue reading to find out!
Meaning & Benefits of SIP
Under a systematic investment plan (SIP), an investor can invest a limited amount in a mutual fund of their choice at regular intervals, say monthly or quarterly. This type of investment is appropriate for both beginners and experienced investors. You can start investing with Rs. 500 and create a corpus of wealth over a long period of time. The investors can select from a variety of payment frequencies, including monthly, quarterly, half-yearly, and yearly.
Reasons To Invest in SIP
Listed below are some of the advantages of investing in systematic investment plans (SIPs).
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Regular Savings:
Through the auto-debit feature, every month a certain amount is deducted from your account and invested in SIPs. This enables investors to invest a portion of their income regularly to achieve their life goals. In addition to developing the habit of saving, investing in SIP will help you create wealth.
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Affordable Investment:
SIPs are affordable investment solutions that can create wealth over a long period of time. With a minimum amount of Rs. 500, you can begin investing in SIPs. Moreover, you increase your investment amount along with an increase in income. Additionally, if you invest money for a long time, the force of compounding works in your favour.
For instance, if you invest Rs. 1,00,000 for a year in mutual funds at a yearly return rate of 15%. So, at the end of the year, your amount will be Rs. 1,15,000. Similarly, if you continue to keep your SIP in second year, your amount would be Rs. 1,32,000.
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Protection Against Market Volatility:
When it comes to SIPs, they are less risky as compared to other investments. This is because people invest in SIPs for a longer period of time, which helps them beat the period of inflation without any worries.
Meaning & Benefits of ULIPs
A Unit Linked Insurance Plan (ULIP) provides dual benefits of life insurance and investment under the same plan. Under ULIPs the investors invests in stocks and bonds and get returns based on the current market conditions. It is the best investment option to create wealth and plans a better future for your family. Generally, it is advised to hold onto your investments for a period of 7 to 10 years because the longer you hold onto them, the larger the returns will be.
Reasons To Invest in ULIPs
Some of the advantages of investing in ULIPs are listed below.
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Dual Benefits:
Investing in ULIPs will not only help you in creating wealth but will also provide you with insurance coverage. A portion of the premium payable goes to the life insurance cover and another remaining part is invested in stocks and bonds. In addition to this, ULIPs also provide tax benefits.
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Flexibility To Choose Funds:
Under ULIPs, an investor can choose to invest in the type of funds according to their choice. If you’re comfortable with taking higher-risk investments, then choose equity otherwise debt. You can also change between the funds in a ULIP.
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Partial Withdrawals:
After completing the 5th year of ULIPs, a policyholder can withdraw a portion of the investment according to their persisting needs and goals. Though there are no terms and conditions issued regarding partial withdrawals, it is suggested not to make large withdrawals as it could lead to policy termination.
Comparison Between ULIPs and SIPs
Before buying an investment instrument, it is crucial to understand the important factors that should be considered. A successful investment strategy involves identifying safe instruments that can create wealth quickly and have the ability to meet short- and long-term goals. Though ULIPs and SIPs both are good investments but are unique from each other. Understand the difference between ULIPs and SIPs in the below section.
|
Basis |
SIPs |
ULIPs |
|
Lock-in Period |
3 Years |
5 Years |
|
Regulated By |
SEBI |
IRDAI |
|
Type of Plan |
SIPs are pure investment plans. |
ULIPs are dual-benefit plans that provide features of both insurance and investment plans. |
|
Partial Withdrawals |
The invested amount can be withdrawn at any time during the policy period. However, the condition is not applicable to ELSS mutual funds. |
The investor can withdraw their investment amount after the lock-in period of 5 years. |
|
Additional Benefits |
No additional benefits are provided. |
The add-on loyalty bonus is available upon completion of a predetermined time period during which additional fund units are provided. |
|
Fund Switch Option |
Under SIPs, you can make unlimited free switches between the funds. |
ULIPs provide flexibility to switch between funds only for a limited time in a particular year. |
Conclusion
ULIPs and SIPs are both unique and great investment options. Before investing in any of these, ask yourself the following questions:
“Do I need life insurance coverage?”
“How much risk am I willing to take?” and lastly, “What are my financial goals?”
After answering these questions, compare the above-mentioned two types of investment instruments and choose the one that suits you the best.
Also Read: Difference Between Gold Coin And Gold Bar
