Mutual Fund are pure investments. ULIP are combination of Insurance and Investment.
First question that we need to answer while buying ULIP is - Do I need to buy insurance?
1) Does the person seeking insurance have any financial liabilities?
2) If something happens to the person, Is there someone who can be in a financial crisis?
1) Insurance
ULIPs provide you with insurance cover.
MFs don’t provide you with insurance cover.
A point in favor of ULIPs. But let me tell you that you don’t get this insurance cover for free. Mortality charges (i.e. the price you pay for the insurance cover) get deducted from your investment.
2) Entry Load
ULIPs generally come with a huge entry load. For different schemes, this can vary between 5 to 40% of the first years premium.
MFs do not have any entry load.
Tax saving MF ( Popularly called as Equity Linked Saving Scheme or ELSS) come with a lock-in period of 3 years. Other MFs don’t have a lock-in period. Again MFs have advantage over ULIPs. ULIPs do allow you to take money out prematurely but they also put penalties on you for doing that.
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