Finance

ULIP vs SIP – A side-by-side comparison

The primary objective of the investment is to earn more profits. Many individuals put their money in productive investment tools, which offer high returns. Due to high returns, you can grow your funds, which, in turn, helps you to fulfill your dreams. There are many investment vehicles like stocks, bonds, certificate of deposits, and so forth that provide returns on your invested capital. However, a Unit Linked Insurance Plan (ULIP) and Systematic Investment Plan (SIP) is picked by a lot of people. 

Although both these investment products are different, they are often confused with one another. Therefore, let’s understand what is ULIP plan and what is SIP, separately for more clarity:

Unit Linked Insurance Plan (ULIP):

A ULIP plan is an amalgamation of investment and insurance under a single plan. When you buy a ULIP plan, you can diversify your investment portfolio. As a policyholder, you can invest in equity funds or debt funds based on your risk appetite. For instance, if you have high-risk appetite, you can invest in equity funds to receive high returns and vice versa. Additionally, a ULIP plan is a long-term investment with a lock-in period of five years. The longer you stay invested in the ULIP policy, the higher are your chances to grow your corpus for a better future.

Now that you know the answer to ‘why should I invest in ULIP?’ let’s proceed further to understand the meaning of SIP in detail:

SIPs allow you to invest a specific proportion of your money in mutual funds (MFs) every month. Under SIPs, you can begin investing with a minimum amount of Rs. 500. When you invest in SIP, you can choose your premium payment term based on your convenience. As a policyholder, you can pay the premium quarterly, monthly or annually. With SIPs, you can meet your long-term goals by generating a corpus. 

Since we know the primary difference between a ULIP plan and SIP, let’s move on to understand the returns generated from these investment products:

ULIP SIP
ULIP premiums are directed towards the funds of a ULIP policy to generate the returns SIP investment is made in the form of mutual funds. Therefore, your invested capital is exposed to the risks of the market
A ULIP plan is a flexible option, which allows you to switch between funds to secure your invested capital from market volatility Your returns from SIPs are based on your invested capital 
To avail high returns, you should stay invested until the completion of the lock-in period of five years. Moreover, you can receive loyalty additions if you stay invested for a long time SIP returns can be utilized after the completion of the lock-in period of three years, if applicable under the Equity Linked Savings Scheme (ELSS)

 

In India, less than 1.5% of investors prefer to invest in mutual funds. Although mutual funds have been in the market for a long duration, you would find yourself drawn towards a ULIP investment due to its benefits. Let’s take a look below to know the ULIP benefits in detail:

  1. Life coverage

Since a ULIP policy is a dual-benefit product, it offers financial protection to your family. In your absence, your family members can receive a payout, called as a death benefit. The death payout ensures your loved ones are financially stable in your absence. 

  1. Tax benefits

A ULIP plan offers tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961 to help you save more money. As a policyholder, you can claim a tax deduction up to Rs. 1,50,0000 on your taxable income, according to Section 80C. Additionally, the death payout is tax-free, as stated under Section 10(10D).

To sum up, there might be numerous investment products in the Indian market today. However, you might receive relatively minimum benefits from other investment products as compared to a ULIP policy. A ULIP policy is an investment tool, which is a convenient, transparent, affordable, and flexible option of investment. Before purchasing a ULIP plan, evaluate your requirements so that the ULIP aligns with your financial needs and goals. 

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