Are new age ULIPs the same as mutual funds?
Posted On March 24, 2022
Comparison between mutual funds and ULIPs
Here’s a detailed comparison of various parameters concerning mutual funds and ULIPs:
● Tax benefits
Under ULIP, the premiums paid by you are eligible for tax deductions under Section 80C. In addition, all maturity proceeds feature tax exemption under Section 10(10D).
However, as per recent Budget proposals, the tax exemption on ULIP proceeds is no longer eligible for a tax deduction if the premium is more than Rs.2.5 lakh per year. For such ULIPs, the taxation of maturity sum will be similar to that of equity mutual funds.
When it comes to mutual funds, only ELSS funds are eligible for a tax deduction of Rs.1.5 lakh under Section 80C of the Income Tax Act.
● Asset classes and fund options
As an investor, you get a number of options for asset classes under mutual funds, such as equity, debt, gold, bond, international equities, and more. On the other hand, ULIPs do not feature many fund options and often provide only standard debt and equity instruments.
● Lock-in period
ULIPs come with a lock-in period of 5 years, which might be substantial in comparison to mutual funds. However, most mutual funds have no lock-in period and allow you to redeem your units whenever you please.
Evidently, both mutual funds and ULIPs have their own set of features that make them similar and unique at the same time. Thus, investors who want to create wealth can choose either option and guide their investment through leading aggregators.
The new-age ULIPs provide a host of benefits that are at par with mutual funds. However, individuals must assess their risk appetite, investment horizon, and financial goals before choosing between the two investment options.