Mutual Funds V/S Endowment Plans- Which One Is Ideal For Me?

Mutual funds are sometimes misunderstood as a difficult-to-understand financial tool. In actuality, their investment strategy is rather straightforward, and they provide a number of advantages to investors, including diversification, expert money management, economies of scale, transparency, and liquidity, to name a few. Mutual funds, in simple terms, are a collection of investments that include equities, debt instruments, money market instruments, and other types of securities.

Endowment subscribers, on the other hand, receive a cash return at maturity. These endowment products are suitable for handling a variety of financial commitments, such as paying for children's education and marriage. An endowment policy can also be utilized to construct a retirement fund or to purchase a home.

Benefits Of Mutual Funds

Below are a few benefits of Mutual Funds:

1. Management Expertise

Many investors lack the time or resources to undertake research and make individual stock purchases. This is where professional management is quite beneficial. Several people invest in mutual funds because of the professional skills they give. A fund manager keeps a close eye on investments and modifies the portfolio as needed to accomplish the goals. One of the most significant advantages of a mutual fund is its competent management.

2. Extremely Liquid

Mutual funds can easily be sold to meet one's financial needs. Within a few days of the money being liquidated, it is deposited into your bank account. Mutual funds that distribute money more promptly are also available. Because the money is transferred to your bank the same day, they're referred to as funds with instant redemption capacity.

3. Benefits From Taxes

The tax advantages connected with a specific type of mutual fund may be what attracts the majority of investors to this investment vehicle. The Indian government provides many tax perks to encourage mutual fund investing.

4. Well-regulated

The Securities and Exchange Board of India, India's financial markets supervisor, monitors all mutual funds (SEBI). This indicates that all mutual fund houses must comply with SEBI's various mandates. As a result, the interests of the investors are protected. SEBI also mandates that all mutual funds disclose their holdings on a monthly basis.

Benefits Of Endowment Plans

The following are some of the advantages of endowment plans:

1. Affordable Premium

For most insurance customers, the cost of the premium is the first consideration. Because endowment policies are such a long-term investment, a low premium is essential. Due to unforeseen circumstances, a large premium sum may force you to stop.

2. Guaranteed Additions Or Bonuses

Some endowment arrangements include guaranteed additions or bonuses (GAs). At the end of each policy year, if all due premiums have been paid, Guaranteed Additions (GAs) are added to the policy. This amount is calculated as a percentage of all previous premiums paid. This means that if you stick to a policy, you will be rewarded indefinitely.

3. Guaranteed Savings

Endowment policies provide guaranteed savings regardless of market conditions. As a result, your financial goals and the future of your family are always in good hands. Endowment policies combine savings and life insurance into one package. Furthermore, the returns are tax-free, resulting in larger actual returns.

4. Benefits Of Life Insurance

Your loved ones are always taken care of. The life insurance benefit provides a lump sum payment, ensuring that your family members can continue living the life you so carefully planned for them even if you pass away. This is a set sum that is delivered to your legal heir/nominee. Remember that certain policies have guaranteed increases and Reversionary Bonuses that are factored into the death benefit calculation.

Conclusion

Endowment plans often have a policy term of more than ten years, and the rate of return earned throughout that time, including various bonuses, has been much lower than that of well-performing stock mutual funds. In the long run, equity mutual funds should be able to build a significantly greater corpus than endowment plans or fixed-income vehicles. Equity mutual funds also provide significantly more liquidity than endowment programs. Furthermore, one should maintain their investment and insurance needs distinct at all times. Choose a pure term plan with an amount assured of at least 12 to 15 times your annual salary if you don't have enough life insurance.

Also read - How To Buy the Right Endowment Plan?

Things to Know About Endowment Policy

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.