Nowadays most of the articles, discussions happily compare ULIP with Mutual funds and suggest latter over the former.
First one must understand that ULIPs are not an investment product. They are actually an insurance product. So it can only be compared with traditional Term insurance plans or endowment or money back insurance plans.
Since the underlying assets of a ULIP and mutual fund are same, comparing these products become fashion these days.
Prime objective of a mutual fund is only asset accumulation where as of a ULIP is insurance coupled with asset accumulation.
In India, customers mostly commit with an insurance product not because of understanding the need but out of compulsion. This is because, in most case, the insurance adviser would be a friend or a relative.
In most cases, the adviser won’t promote a Term plan because
- It won’t return anything if the life assured survives the term and also many customer avoids it.
- Size of premium will be meager which results in meager commission also.
Hence, by reducing the sum assured, they usually promote traditional endowment plan which can never beat inflation.
If you compare a ULIP with Traditional endowment plan, in the long run, the ULIP will definitely score over.
Don’t compare ULIP with mutual fund.
So if you are thinking about Insurance think about ULIPs
. If you are looking for mere Investment, go with mutual funds.