ULIP VS SIP: Which is Better?

A Brief Overview 

Investments are made keeping in mind varied goals that differ based on the investor in question. Two investment forms that are frequently flocked to are Unit Linked Insurance Plans (or ULIPs) and Mutual Fund Systematic Investment Plans (or SIPs). Read on to understand the differences between the two.

ULIP

Understanding ULIPs

Serving the dual purposes of insurance and investment, ULIPs invest in stocks and bonds capable of generating returns keeping in mind the prevailing market conditions. Those that invest in ULIPs do so as they allow for wealth creation over long periods of time. They allow for the fulfillment of long-term financial goals that include funding a child’s education or marriage.

Predetermined premiums are required to be paid in order to invest in a ULIP which can be asked for on a monthly, quarterly, or yearly basis. These premiums are invested in a wide array of instruments including stocks and bonds. The performance of the market alters the value of the fund. Should the policyholder die while the policy is active, their beneficiary is paid the fund value or sum assured – whichever is higher. Else, the available fund value is paid when the plan matures.

Understanding Mutual Fund SIPs

Mutual funds are popular investment options wherein money paid by investors is pooled into a fund which is collectively used to invest in a variety of instruments based on the choice of the fund manager who is responsible for managing the fund. Mutual funds exist in a variety of formats (equity mutual funds, debt funds, hybrid funds) and their mode of payment may vary i.e., they may exist as SIPs or payments can be made in a lump sum.

SIPs allow investors to invest in a fixed amount that is directed to the mutual fund of their preference on a regular basis. The installment required to be paid can be as modest a sum as INR 500. The frequency with which these installments are required to be paid can vary and can range from a weekly to yearly basis. SIPs are ideal for first-time investors as they are flexible. Investing in a SIP is viable as it allows for investors to meet their financial goals and accumulate a corpus over a long-time frame.

ULIP vs SIP

When considering this argument, as established in the previous two subheadings, each investment tool has its benefits, however, they do differ on a number of parameters.

  • Investment Goal – For starters, ULIPs serve the goals of investment and insurance whereas SIPs only serve investment goals.
  • Investment Tenure – Next, investment tenures for ULIP require premiums to be paid keeping in mind the term for the plan whereas SIPs don’t have a fixed tenure and are invested in so long as the investor desires.
  • Lock-in Period – Lock-in periods applicable for ULIPs amount to 5 years whereas they are 3 years for SIPs.
  • Charges – ULIPs involve multiple charges ranging from premium allocation charge and fund management fee to administration charge and mortality charge. Conversely, SIPs only have entry and exit load charges which are applicable in limited cases.

Concluding Thoughts 

Investors must consider their own financial profiles prior to considering which investment tool works best for them. In order to have a more comprehensive understanding of the differences between the two forms of investment, head on over to Finserv MARKETS.

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Student. Award-winning communicator. Subtly charming coffeeaholic. Organizer. Gamer. A real dynamo when it comes to managing jack-in-the-boxes for fun and profit. Spent the 80's donating shaving cream in Libya. Spent 2001-2004 lecturing about Roombas in Jacksonville, FL. Garnered an industry award while getting my feet wet with sheep in the government sector. My current pet project is working on Slinkies in Orlando, FL. Spent 2002-2009 developing strategies for crayon art for the underprivileged.