ULIP or SIP? Know all details here

Human beings cannot stay away from dilemmas. In the case of investment too we are regularly caught between two choices and are at a loss what to do. United Linked Insurance Plans (ULIP) and Systematic Investment Plans (SIP) often put us in dilemma. . ULIPs are one of its kind financial investment tools. They provide benefits of both insurance and investment. While providing you with insurance cover ULIPs allow you to invest in the market. For long-term financial goals, ULIPs are a good option.

SIP is a systematic way for channelising your investment. It is primarily associated with mutual funds. Through SIP, you can invest on a monthly, quarterly, or yearly basis. It helps you build up a decent amount of money by the time you retire, or till the time you choose the policy to last.

Money9 explores the differences between ULIPs and SIPs:

There are several differences between ULIPs and SIPs. From an investment perspective, the choice depends on your financial goals and plans. Take a look so that you can find the best possible investment instrument of your choice.

Benefits

The fundamental difference is that ULIPs offer you the benefit of both insurance and investments. On the other hand, SIPs are purely a wealth-building investment option with no life cover.

Risk factor

Mutual funds are pure investment products. It makes them a riskier alternative. On the other hand, ULIPs are primarily insurance products. As a result, the fund managers try to avoid high risk strategies.

Charges

According to market experts, fund management charges that are associated with mutual funds are quite high.  ULIPs on the other hand, come with much lower fund management charges, standing at around 1.35%. However, there are other charges applicable to ULIPs.

Lock-in period

ULIP plans come with a lock-in period of five years, whereas the SIP plans usually don’t have any lock-in period (tax-saving SIPs have 3-year lock-in period).

Switching options

In ULIP plans, free switching options between funds are offered whereas SIP does not offer the benefit of fund switching.

Tax benefits

Equity Linked Saving Scheme (ELSS) is the only mutual fund that offers tax-saving opportunities. But in case of ULIPs, any amount up to Rs 1.5 lakh can save taxes under section 80C of the Income Tax Act.

Expert view

“Both ULIPs and SIPs are gaining popularity in India.  Both are good options for investment. Till at the age of 40 years or 45 years one can invest a large portion of their savings in ULIPs or SIPs. But after the age 45 years, I think, everyone should change their strategy and invest more in secure options rather than instruments with risk,” said Suman Saha, a chartered accountant.