How Mutual Fund is Better than Insurance

In today’s day and age, we have numerous choices when it comes to investment.  Every investment serves a different purpose for an individual. The features, advantages, and disadvantages of every investment differ from each other. An investment which is best suited to one person may be a disadvantage to another. It all depends on the financial and life goal of the person who is planning to make the investment. Many a times, people don’t understand the basics of the financial products and get confused. These result in people giving individual advice on a specific financial product like,”Mutual fund is better than Insurance” or “Insurance is better than mutual fund”.  It is vital to understand both these products fulfil different financial needs. This article will help you understand the difference between the two products so you can judge yourself which product is better for your individual case.

	Life Insurance		Mutual Fund
Meaning	Life insurance protects and secures that financial future of your family in your absence	Meaning	Mutual fund helps to increase your wealth through market linked investment opportunities.
Goal: Dependent family	A life insurance policy is a must in a person’s financial portfolio, as it protects the financial future of your spouse and children, and dependent parents	Goal: Wealth	Mutual funds help to realise your long term financial goal like buying a house, children education, marriage etc.
Risk factor : Very Safe	A life insurance policy is a very safe investment as compared to mutual funds. It provides guaranteed death benefit.	Risk factor: Medium to high	Dependent on equity market mutual funds are riskier than life insurance. Risk factor depends on the funds or portfolio you choose. It also does not provide any life insurance.
Low Returns	Life insurance if used for investment might not be able to give returns equal to that of the mutual fund.	High Returns	Mutual fund offers option of diversified funds which can help you get high returns. In the last couple of decades, mutual funds have given the highest rate of return in comparison to any other investment tool.

Which one should you choose?

Every financial instrument in which you invest in holds distinctive characteristics and benefits. It is essential to understand each product and what it has to offer in absolute detail. Making a decision on any investment the first thing that needs to be taken into consideration is that how it becomes an asset to you in the time period you are going to hold the investment. After all, it is your hard earned money which you are going to invest in a particular financial scheme.

To compare between life insurance and Mutual funds, we can take a life insurance product such as ULIP, which will draw a fair comparison between the two investments. In ULIP, you can get benefits of both life insurance and mutual funds. ULIP is designed in such a way that it offers life insurance as well as an investment opportunity in market-linked securities in the same plan. Part of the premium of ULIP goes towards the life cover component of the plan and the rest is invested in the market to generate wealth for the investor. ULIPs are a great choice for investors who want the dual benefit of life insurance with high returns from the equity market. The funds of ULIP invested in the equity market are managed by experienced fund managers just like mutual funds which not only helps your money grow but also carry lower risks. Similar to mutual funds, in unit linked insurance plan the policyholders have the option to choose the funds as per their risk appetite and returns they are expecting. For high returns, they will need to be aggressive and invest most of their investment in equity funds. For medium returns, they will need to invest a maximum of their corpus in debt related funds. You can also have the flexibility to adjust your risk by investing in both equity and debt market funds to maximise your returns and at the same time be careful of the volatile market conditions.

More detail comparison

	ULIP	MUTUAL FUND
What are you getting in your investment?	Life Insurance + Investment.	Only Investment (no life coverage).
Is it saving any tax for you?	Premium will tax free under section 80C of the IT Act, 1961. The death benefit will also be tax exempt under section 10(10D) of the IT Act,1961	Mutual funds falling in category of ELSS only offer tax benefits under section 80C.
Life Insurance	Yes	NO
Riders	Option to enhance your life protection through additional riders.	Not Applicable
Return on investment	Gives moderate to high returns as per the investment portfolio and performance of market	Chances of getting high returns through equity fund portfolio which is all high risk.
Exit period	ULIP have a lock in period of 5 years	Mutual funds don’t have a lock in period except ELSS which has a lock in period of 3 years
Investment strategy	When you want financial protection and good market returns on your investment.	If your investment objective is only high returns and you’re not looking for life protection
Ideal Investment period	unit linked insurance plan  is normally for long term investment goals	Mutual fund investment period can be short, medium or long. For any fruitful returns, long term investment is recommended.
Best Time to buy	There is never a best time to buy life protection. It is a must in one’s investment portfolio. With ULIP you can get the best of both worlds.	When one has disposable income. Mutual funds also give SIP option which can be as low as INR 500 a month
Fund Management fees	Fund management charges is up to 1.35%	Fund management fees in mutual fund is up to 2.5%

The above would have helped you clear lot of confusion between Life Insurance and Mutual fund. If you already have ample life insurance policies and want to invest in the market-related investments then mutual funds are the best way forward. You can take help of mutual fund calculator that will help you explore top 10 mutual funds options.

If you don’t want the hassle of maintaining two different investments, then ULIP is a good choice. ULIP will be a smart investment product for individuals who don’t have much knowledge on equity market or different fund option available with mutual fund but want to benefit from long-term capital appreciation through investment opportunity in equities. List down your financial goals and requirements and accordingly put your money in the appropriate investment product.