ULIPs vs Mutual Funds: What is the difference, which is better and where should you invest?

It is important to understand the difference between ULIPs and Mutual Funds before making the investment decision.

ULIPs vs Mutual Funds: ULIPs have deductions from the premium which are not there in mutual funds. Image - Pixabay

Nowadays, there is an abundance of investment instruments in the market. Every instrument has its own pros and cons. There are investment options linked to equity as well as life insurance like ULIPs. Then there are term insurance, life insurance, mutual funds among others. Many times investors get confused seeing so many investment options. However, here's a quick guide for those who want to invest but are confused between ULIPs and Mutual Funds.

ULIPs vs Mutual Funds
It is important to understand the difference between ULIPs and Mutual Funds before making the investment decision.

"The difference is ULIPS are part life insurance cover and part investment in debt and equity depending on the risk appetite opted by the investor in the ULIP while mutual funds are pure investment vehicle with zero deductions for mortality charges for life insurance," said Tarun Vohra, CEO, Integra P.R.O.F.I.T.

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Vohra further explained that ULIPs have deductions from the premium which are not there in mutual funds.

1. Very high first-year commissions that are deducted from premium payments

2. Mortality charges that are deducted from premium payments

Hence less capital is put to work in case of ULIPS vs MFs.

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So, what should an investor do? Should he invest in ULIP or Mutual Fund?

Saying that both should be kept as two separate entities to derive full benefit from each option, one being investment and the other insurance, Vohra added, "An investor should optimally do a term life cover for life insurance and a mutual fund for investment".

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