Equity Funds vs Ulips
By admin_mutual | Jan 10, 2023
A mutual fund program known as an equity fund invests primarily in equity stocks. Unlike equities, where an investor owns a share of the company, mutual funds do not involve any form of investor ownership. Investment should be made in accordance with the current SEBI Mutual Fund Regulations. You can select from a variety of equity fund types, such as those that focus on growth stocks, income funds, value stocks, large-cap, mid-cap, small-cap, or a combination of these.
Unit-Linked Insurance Plans, or ULIPs, which are another financial product, are frequently mistaken for equity funds. These are insurance contracts that serve the dual functions of protecting you from risk and generating a profit through investment. Similar to the equity fund house, the insurance agency also raises money from investors by floating a fund. It then makes investments with this money in securities like bonds and stocks. It does resemble equity funds, but the two are not the same. Know the key points of differences between the two:
Insurance
The biggest distinction is that only ULIPs provide a life insurance policy; mutual funds do not. Your family will receive this amount of money from the insurance company in the event of an untimely death.
Protection
There are some ULIP products available on the market that provides an additional layer of protection through riders or built-in advantages. Customers a) saving for a particular need and b) concerned that their needs might not be met in the event that they are no longer around in the future, are the best candidates for these types of ULIP products. Saving money for a child’s education serves as an illustration. To cover these costs, a lump sum assured amount is offered by a few ULIP products upon the death of the parent. The company also continues to cover the parent’s premiums for the fund. Additionally, it gives the family a consistent income for the remainder of the policy’s term.
Savings in tax
In accordance with the Income Tax Act’s Section 80C, ULIPs permit tax deductions. Your entire taxable income is reduced by the amount you make investments in a ULIP. As a result, you owe the government less in income tax. However, mutual funds do not always assist you in lowering taxes. Only equity-linked savings plans, also known as ELSS funds, offer these tax deductions to you.
Which One to Choose, and When?
So when do you need to make investments in an equity fund and when should you choose a ULIP? This solution is not obvious. The answer can be given depending on your individual needs.
First off, you should choose a mutual fund if you require your investment to be liquid—easily convertible on short notice into cash. The minimum lock-in period for ULIPs is five years. You are unable to withdraw your money during this time. Naturally, not every mutual fund is liquid. There is a lock-in period of 3 years for ELSS funds as well.