Whoever said investments are a must wasn’t wrong. Making the right investment choices allow you to grow your wealth over time. Besides, many investors park their surplus money into several investment instruments to gain reasonable returns, avail tax benefits and accomplish future financial goals.
Today, we have numerous investment tools, such as Equity Linked Savings Scheme (ELSS), Provident Fund (PF), Senior Citizens Savings Scheme (SCSS), and more. However, amongst all the options, a Unit Linked Insurance Plan (ULIP) and Systematic Investment Plan (SIP) remains an all-time favourite of most investors.
In this section, we have tried to explain these two investment options in detail. Based on this information, you can decide whether you should invest in ULIP or SIP. Come, let’s find out:
What is a Unit Linked Insurance Plan (ULIP)?
Popularly known as ULIP, a Unit Linked Insurance Plan is a financial product available in the market. It is an excellent dual-benefit scheme for those who wish to reap the benefits of investment and life insurance under a single plan. Due to its dual benefits, you (the investor) can protect your family with adequate life insurance coverage and invest in market-linked funds of your choice. To make the most of a ULIP investment, it is advisable to stay invested for a longer period.
What is a Systematic Investment Plan (SIP)?
A Systematic Investment Plan or SIP is one of the most popular types of mutual funds. It lets you invest a specific proportion of your money towards your selected mutual funds for a predetermined time. You (the investor) can pay the amount quarterly, monthly, or even annually. It inculcates a regular investment habit that further lets you build a significant corpus. This amount can be used to attain your and your family’s future financial needs.
Now, let’s dive deep into the difference between ULIPs and SIPs.
| Unit Linked Insurance Plan | Systematic Investment Plan | |
| Type of plan | It is a combination of investment as well as life insurance cover. | It is a plain investment plan that allows you to park a certain amount in mutual funds. |
| Lock-in period | ULIPs have a lock-in period of five years. | Under SIPs, ELSS mutual funds come with a lock-in period of three years. |
| Flexibility | ULIP is a flexible investment that provides a fund switching feature, top-up facility, and different frequencies for premium payment. | When you invest in SIPs, you have the freedom to increase or decrease your invested capital. |
| Liquidity | ULIPs do not allow you to dip into your funds during the first five years. | SIPs lets you withdraw your funds as per your convenience. |
| Tax efficiency | Under ULIPs, the premium paid towards the policy can be claimed for tax deduction under Section 80C. | SIPs do not offer tax benefits. However, you can claim tax deductions up to Rs. 1.5 Lakhs under ELSS mutual funds as per Section 80C of the old income tax regime. |
After carefully analysing ULIP vs SIP, you’ll start wondering, ‘Which investment product should I use?’ Well, the answer is pretty simple! To choose the right investment product, consider your financial requirements and goals to ensure that you receive the maximum benefits.
Both ULIPs and SIPs have their set of pros and cons. However, according to us, you should park your funds into ULIPs for multiple reasons.
A ULIP investment is an excellent choice because:
- It has a long-term investment horizon.
- It gives you the choice to invest in either equity funds or debt funds. In the case of market fluctuations, you can switch your money from equity to debt funds.
- It lets you financially secure the future of your loved ones in your absence.
- It allows you to build a significant corpus to fulfil your long-term financial goals, such as buying a new house, studying abroad, planning a dream wedding, and so on.
In a nutshell, it’s imperative to choose the right investment product for your finances. When you select the one suitable for you based on your risk appetite, investment goals, and coverage, you can stay relaxed. All you have to do is watch your money double on its own.