ULIP or SIP - Which is Better?

People have different reasons for investing, depending on their financial goals. In India, there are many ways to invest money to grow wealth and ensure financial security for the family. However, picking the right investment can be confusing at times.

 

One common dilemma for investors is choosing between Unit-Linked Insurance Plans (ULIPs) and Systematic Investment Plans (SIPs). So, before making any decisions, it's important to know what these terms are.

A Systematic Investment Plan (SIP) is a way for people to invest in mutual funds. Through SIP, you regularly invest a specific amount of money in a chosen mutual fund account. You can make these payments monthly, quarterly, or yearly based on your convenience and financial plans.

 

Some benefits of investing in SIP include:

• Hassle-free process with no manual payment intervention required.

• Encourages a disciplined approach to saving money, as the invested amount is automatically deducted from your bank account at chosen intervals.

• Utilises rupee cost averaging, helping investors navigate market fluctuations and reduce the impact of market volatility.

• Allows investors to own small units of stocks with just a few thousand rupees.

A Unit-Linked Insurance Plan (ULIP) is a unique offering that combines investment and life insurance coverage in a single plan. A portion of the premium goes towards life coverage, while the remainder is invested in various market instruments like bonds and stocks.

 

Some benefits of investing in ULIPs include:

• Provides the dual advantage of investment and life insurance cover.

• Facilitates the achievement of future financial goals with a five-year lock-in period.

• Permits partial withdrawal from the investment after completing the lock-in period.

• Offers tax benefits under both the old and new income tax regimes.

Now that we know what these investment instruments are, let us understand the difference between ULIP and SIP. The following table will help you with the same:

Every month, you’re left with a limited amount of money to invest and grow, so it’s imperative that you choose the right avenue for your finances. Let’s take a look at the factors to consider when choosing between unit linked insurance plans and mutual funds:

1. Benefits

ULIPs stand out by providing a life cover, a feature absent in Mutual Funds or SIPs. In terms of investment, both ULIPs and Mutual Funds function similarly.

2. Risk

Mutual Funds, being purely investment-based, carry higher inherent risks. In contrast, ULIPs, rooted in insurance, offer a built-in sense of security.

3. Tax-Savings Features

While only Equity-Linked Saving Schemes (ELSS) in Mutual Funds qualify for tax benefits under Section 80C, ULIPs provide exemptions on the premium paid. ULIPs also enjoy exemption from Long-Term Capital Gains (LTCG) tax, distinguishing them from Mutual Funds.

4. Fund Management Charges

SIPs in Mutual Funds have a 2.50% charge, comparatively higher than the lower 1.35% charge for ULIPs. Staying informed about associated charges is crucial for both options.

When aiming for near-future financial objectives, choosing between Systematic Investment Plans (SIP) and Unit-Linked Insurance Plans (ULIPs) becomes crucial. Prior to deciding, a thorough assessment of your current financial status and investment goals is necessary.

 

For those with a focus on long-term investment or wealth creation, ULIPs prove to be a suitable choice. The accrued maturity benefits can be used strategically for various financial milestones like a child's education, marriage, personal retirement, or other specific goals. Bajaj Markets offers secure and affordable ULIP plans, making them ideal for first-time investors. Tailor your plan choice to align with your unique financial goals and timelines for a personalised and effective wealth creation approach.

Best ULIP Plans Available At Bajaj Markets