Investment and security

MF, ELSS, ULIP, or FD: And the winner is…

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Sub-heading: A quick comparison between ULIP, MF, ELSS and FD.

This is a question that stumps most small investors as they see and hear different versions of the answer depending on whom or where they approach. To demystify all the four, lets do a quick comparison between ULIP, MF, ELSS and FD.

ULIP is Unit Linked Insurance plan which is offered by a Life Insurance company. In ULIP, some part of the premium that you pay goes towards investments in equity, government bonds and other market-linked investments.MF or Mutual Funds are funds floated by private or government entities which pool the amount invested by investors in various securities according to a pre-specified investment objective. ELSS are Equity Linked Savings Scheme which are similar to Mutual Funds except that there is a lock-in period. Bank F.D’s or Fixed Deposits are money invested in a bank for a fixed period fetching interest from the bank.

ULIP is the only one among the four that provides you with a death benefit. Since it is Life Insurance, there is a Sum Assured which is payable to the nominee on the death of the Life Assured. The other three are only investment avenues with no death benefits.

ULIP’s offer you the flexibility of switching the fund allocation. With switching made easy due to online mode, you can switch between funds depending on the market outlook and the risk mindset that you wish to adopt. This facility is not available in the other three avenues. In ELSS, you can only switch funds after completion of three years.

ULIPs sometimes issues additional loyalty benefits by issuing extra units. This feature is again absent in the other three avenues.

Over the longer term, ULIP’s offer you greater benefits than all the other three. F.D’s and MF’s are good for shorter term as they do not have any specific lock-in period.

Only ULIP’s and ELSS provide tax rebates. Also, the amount received from these investments are tax-free. The returns from both F.D’s and MF’s is taxable in the hands of the investor.

Although ULIP has a lock-in-period of 5 years, which is not there in bank F.D’s, the truth is that if you withdraw the amount deposited in an F.D before the due date, there is an interest loss due to the same.

A ULIP includes charges for mortality, premium allocation charge, fund management charge and administration charges as applicable. In a MF also, there are entry loads on investing and an exit load on taking out the investment.

Conclusion: ULIP is the best for…

It is clear from the above that an apple to apple comparison cannot be made between the four. However, depending on the investment horizon and the financial goal that you are pursuing, you can decide on the most appropriate avenue for you to invest in. As a rule of thumb, for those individuals with a long-term horizon and looking for an investment which gives them tax-free returns along with rebates and insurance, ULIP is the best bet.

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