subject: The new ULIP v/s the new Mutual Fund [print this page] The Unit Linked Investment Plan (ULIP) v/s Mutual Fund debate is in the eye of the storm yet again. Everything that can be said already has been said. However, the rules or both the investment avenues have changed recently. Many of the changes directly affect the returns of the investor. Hence it is worthwhile to revisit the old debate for a fresh reassessment of the two investments and to understand as to which makes for a better investment.
Sales people who are hard selling a financial product will often tell you that ULIPs are the same as mutual funds except that they also insure you. While there are some superficial similarities between the two, the products are very distinct from each other. An investor should not go by the sales pitch but understand the differences to make the right investment choice.
The purpose
The primary raison d'etre of ULIPs is life insurance. The recent turf war between Insurance Regulatory and Development Authority (IRDA) and Securities and Exchange Board of India (SEBI) ended when the courts decreed that IRDA will keep control over ULIPs, reinforcing that it is an insurance product.
Till now we had ULIPs minus any insurance cover. However, now it has been made mandatory for all ULIPs to provide at least mortality cover or health cover except for pension and annuity products.IRDAcircular states that at any given time the annual health cover should not be less than 105% of the entire premiums paid. Investments with insurance provide a value added product for customers, whereas, mutual funds are primarily investment vehicles.
