Investments help in growing your wealth over a substantial period of time. However, if you plan on investing in the stock markets, you have to always remember that stock markets are quite risky, and you could end up losing all your money. There are other investment options that you can take advantage of in order to grow your wealth for a financially secure future. Two such financial instruments that you can take benefit of, are a ULIP policy and a mutual fund. One way of investing in mutual fund is through SIP (systematic investment plan). But what is the difference between ULIP and SIP? And which one is much better? Read on to know more.
What is a ULIP?
A ULIP policy or unit linked insurance policy is a type of life insurance policy that provides you with dual benefits of investment and insurance in a single policy itself. The premium paid for the policy gets divided into 2 parts: one part is used for the life insurance cover and the other part is used for investing in market linked funds. You get 2 types of funds to invest in: equity fund and debt fund. Based on your risk appetite and what your life goal is, you could either choose to invest in an equity fund or debt fund. You also have the option of investing in both funds at the same time to get good consistent returns.
What is SIP?
SIP or systematic investment plan is a type of investment that you can undertake when you opt to invest in mutual funds. Instead of paying one large amount altogether in the mutual fund, you can invest in the mutual fund you want at regular intervals. This means that you only have to pay monthly instalments to be able to invest in the mutual fund. You also have the option of going for at a SIPs quarterly level and a yearly level as well.
Which is better?
The difference between a ULIP and SIP is more like the difference between a ULIP and mutual fund.
Here are the key differences between a ULIP and an SIP:
- Benefit
As mentioned earlier, in a ULIP, you get a dual benefit of investment and insurance in the single policy, whereas in an SIP, you only get the benefit of investment. So, if you want a financial instrument in which you can invest as well as secure the financial safety of your loved ones, especially in your absence, then a ULIP is the most preferred option. If you were looking for insurance cover from mutual fund you do not get that even with the help of a SIP.
- Fund options
When you choose to invest in ULIP, you get to invest in equity and debt funds. Equity funds are stocks of a market-listed company. Equity markets are quite risky, but, they also provide good returns to the investor. Money in debt funds is invested in government securities and bonds, corporate bonds, and other types of cash markets. Debt funds have a low risk factor and provide low-to-medium returns. You have the option of investing in both funds at the same time and track the ULIP Performance. This helps in getting good returns from at least one fund while the other fund gets exposed to certain market risks. This option is not available in mutual funds as investments done in them are done mainly in the equity market only. This means your investments are more exposed to risk in mutual funds, when done via a mutual fund SIP than via ULIPs.
- Returns
In ULIPs as the investment is mixed between equity and debt funds, the returns that you get from an investment are higher than what you get in a mutual fund. The usual rate of return in a ULIP is at least 16 to 17%. And when you start investing in a ULIP from an early stage for a long- term policy, returns of your investments could be substantially higher. Compared to a ULIP, the duration of the mutual fund is quite short, and the returns could vary based on what the market situation is. So, you could either end up with good returns or you could end up with lower returns than expected. You can take advantage of the ULIP calculator to get a better idea.
Based on these differences, you can clearly see that a ULIP offers greater benefit than an SIP. So, if you are looking for good mode of investment to grow your wealth, and want to know about the types of ULIP, you can get in touch with an insurance expert.
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