ULIP Versus Mutual Funds

ULIP Versus Mutual Funds – Which is Better?

This is the commonest query of Investors. In fact, I receive this query several times a week. People ask me that which is better? ULIPs (Unit Linked Insurance Products) products claim that they are better because they give the advantage of Insurance + Investment and the marketing agents also suggest to go for ULIPs rather than mutual funds. In this situation, What is True? Which product to select between the two?

Well, according to me, you should go for Mutual funds & Term Life Insurance Policy to meet your Investment and Insurance needs rather than going for ULIPs. You should never mix Insurance with Investments (ULIPs).

Now, you will ask me that what is the logical reason behind this? Well, the reason is simple. This is because ULIPs are associated with higher operating and administrative costs. While Mutual Funds come with No Entry load and very low fund management charges. On the over all return on your invested money, such types of minor costs matters.

Most of the people don’t count the small costs such as Entry loads, Fund Management Fees, Administrative expenses & Taxes. But these costs ultimately impact on your over all return.

ULIPs are nothing but the opaque mutual funds. They will charge you anywhere between 10-20% of Entry Loads, Service Charges & Fund Management fees. So if you Invest 1000 rupees in ULIPs than only 800-900 will go towards investing while if you invest 1000 rupees in mutual fund than 100% of this amount will go towards investing.

Than Why Your Agent suggest you to go for ULIPs rather than Mutual Funds?

Well, This is because of higher commission charges associated with ULIPs. If the agent sell you ULIP product than he will get much more commission than if he sells you the Mutual Fund. This is the simple reason why all the agents promote ULIPs rather than mutual funds.

How ULIPs can be profitable?

Many people ask me this question & my answer is,

ULIPs can be the most profitable only if you are on the SELLING SIDE…!!!!

Yes, You can make fortune out of ULIPs. But to make fortune from the ULIPs, you don’t need to invest in it. But you have to sell literally thousands of ULIPs to thousands of investors and you will get handsome commission…!!!