LIC – What is the difference between ULIP and Mutual Fund?
The product structure
- In terms of product structure, excluding risk coverage there is only a small difference between ULIP and Mutual fund scheme.
- Both market linked for returns, and they will both carry market risk.
- Based on the investor’s selected stock performance, his returns will reflect exactly that in both cases.
- A fund manager will be responsible for running the scheme for both options.
Regarding regulation, Mutual Funds are regulated by the SEBI, while ULIP are regulated by the IRDA. From an industrial point of view, while Mutual Fund focus on low costs and better performance as the USP, ULIP looks more at distribution reach as the USP.
Mutual Fund have very stringent transparency requirements compared to ULIP, but this also ensures that the investor is availed as much information as necessary, unlike with ULIPs. Daily NAV are followed with Mutual Funds.
While keeping your premium the same a ULIP will allow you to increase your life cover. By reducing your investment allocation this is achieved. You cannot increase your life cover if you have a term policy purchased on top of a Mutual Fund. You would only have the option of purchasing a new policy, thus incurring new administration costs again.
In terms of costs of insurance, typically investing in a Mutual Fund will cost you less than it will cost for a general ULIP scheme. Mutual Funds are better suited for those that solely focus on investment and medium-term returns. ULIP products are better suited for long term investment bundled with insurance cover,
|regulated by the SEBI||are regulated by the IRDA|
|sold by un-tied agents||sold by tied agents attached to one particular insurer|
|Stricter transparency requirements comparatively||Lenient transparency requirements comparatively|
|Less flexible||more flexible|