Do you know the difference between ULIPs Vs Mutual Funds? Well, recently I came across a new knowledge sharing information from HDFC Life. Which I think is completely misguiding the investors.
I stunned myself about how HDFC Life is misguiding openly. Let me share this one by one.
If you need a proof of what I am saying, then visit this HDFC Life’s link of “ULIP and Mutual Fund Comparison”. In this detailed comparison, I found few new comparisons. Which truly defend that between ULIPs Vs Mutual Funds, ULIPs are BEST products.
I will try to explain those points as below.
You notice that in the description, HDFC Life wisely highlighted the types of funds as equity, debt, money market, hybrid etc. This shows that ULIP is the product which invests in various types of funds. However, it wisely skipped to mention the same regarding mutual funds. In relation to mutual funds, HDFC Life just mentioned that mutual funds invest in VARIOUS SECURITIES. But in reality, based on investment objectives, mutual funds also invests in equity, debt, money market, hybrid AND also in a commodity like GOLD.
The most surprising aspect of comparison of ULIPs Vs Mutual Fund is related to objective. You notice this in above image. Regarding ULIPs, it is mentioned as “Unit Linked Insurance Plans are long term plans offering you a dual benefit of insurance and investment”. This is true and I completely agree.
But what about mutual funds? It is highlighted as “Mutual funds are ideal investment tool for the short to medium term“. How can mutual funds which also mainly invest in same asset class like ULIPs (equity, debt, money market, hybrid etc.) are turn to be suitable only for SHORT TO MEDIUM TERM but not for LONG TERM?
In the case of charges, HDFC Life mentioned that Mutual Funds charges include ENTRY LOAD too (along with FMC and exit load). But in reality, in accordance with the requirements specified by the SEBI circular no. SEBI/IMD/CIR No.4/168230/09 dated June 30, 2009, no entry load will be charged for purchase / additional purchase / switch-in accepted by the Fund with effect from August 1, 2009.
Hence, no mutual funds are charging entry load. However, HDFC Life pointing this wrongly. Also, in the case of exit loads for mutual funds, exit load is to make sure that investors must not withdraw or switch to other funds frequently. Hence, for example in the case of equity funds, there will not be any exit loads if you are withdrawing money after a year.
Conclusion-Blind rely or follow is dangerous. Do your own research and if the product suits to you then only go and invest.
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View Comments
Dear Basu sir,
very well written and well explained. i had a few doubts in mind ( regarding ULIPs, not concerned whether HDFC or any other company).
1. all ULIPs invest in the same market in which MFs invest. They invest in the same stocks or funds or AMC, but still ULIP funds returns are less than MF. Why is this difference?
2. Do ULIP funds have any benchmark? ( I haven't seen any mentioned anywhere any life insurers website). IF yes, which is that?
3. if investment horizon is like 15 to 20 years, than will ULIPs be better than MFs (because maturity amount will be tax free in ULIPs, which is not so in MFs because of expense ratio and Capital gain tax of MF)
i request you to kindly answer my doubts regarding these. Thanks in advance Sir
regards
Dear Rajesh,
1) Generalizing this way is wrong. Their stock picking may be different, entry and exit may be different and % of allocation may be different. More than that, cost is the silent killer in your returns, which many investors ignore.
2) There is no clarity from IRDA in this regard. Hence, few may set or few may not.
3) Check new rules of ULIPs (Budget 2021 – All about the Taxation of ULIPs). They are now taxed like MFs after certain thresohold limit.
Hi Basu can you please share some lights on SBI life Smart Privilege
Dear Shahnawaz,
I usually follow the basics of investment called NEVER COMBINE INVESTMENT WITH INSURANCE.
Hi Basu
Do you any article on ULIP , I mean need to know more about ULIP products, there benifits, Best e.t.c
Thanks
Shahnawaz-I does not support ULIPs. Hence, I have not written on such products.
Even now when ULIP does not have Tax while MF have taxes , Please advise ,
Dear Shahnawaz,
But still ULIPs are not so investors friendly.
Hi,
I need some clarification about HDFC Life pro growth plus policy, is this same like SIP.
Thanks
Santosh
Santosh-SIP is not a product but a way of investment. Your bank RD also can be called as SIP.
Hi
Im investing 2.2 Lakhs in ICICI IPRU Wealth Builder II, Not sure if it is good to continue investment.
Please suggest soem funds for Tax benfit and im ready to take risk.
Thank you,
Ankur-What prompted you to go for this plan? Is your investment criteria is ONLY FOR TAX SAVING or reaching your FINANCIAL GOALS?
Basuji,
I invested in that fund, because it was performing well at that time. But now on some website it is advised to get out of that fund. Its last year return is mere 3%. Then what is point to remain in such fund. I have waited more than one year to perform well; but it is way behind category average. Do you think without considering the return I should carry the SIP?
Pratap-Whether you checked the benchmark return of the fund tracking?
Basuji,
I want to come out of one SIP of a mutual fund, which is non-performing. What is the way of this?
Pratap-Why you invested in those funds and why you now felt to come out?
Dear Sir,
Presently I am a regular reader of your valuable blog. After reading your blog I have little knowledge about Mutual Fund. I have some money in FD, RD & EPF.
1) I want to invest in Mutual Fund (SIP) Rs. 1000/- PM. for 8 - 9 Years for child education purpose, which is best Mutual Fund ?
2) As per your view what is the approximate return from 8 - 9 years ?
They say that they are small and mid cap. I want to start SIP in HDFC mid cap; but i have HDFC balanced. both have same fund manager. That is why I want to avoid hdfc mid cap. Besides, there is 35% over lapping. On some web sites Hdfc mid cap fund is mentioned as small and mid cap. what should I do?
Pratap-If you are confused about which market cap the fund is, check the underlying stocks.
Dear Basuji,
For mid cap SIP which is right choice? Franklin smaller companies or DSP blackrock micro cap? My horizon is minimum 10 yrs.
Pratap-Both are small cap funds but not midcap funds.