ULIP or SIP: How to Choose Where to Invest
New Delhi : When it comes to making financial investments, choosing the right investment option is essential. With the right investment choice, you can build your wealth effortlessly and attain your financial goals over time.
Keeping the same in mind, we believe that Systematic Investment Plan (SIP) and Unit Linked Insurance Plan (ULIP) are two such investment options that can help you attain your short-term as well as long-term financial goals.
So, ULIP vs SIP - which is a better investment plan? To help you determine the same, here are certain factors that you need to take into consideration.
1. Investment Type
ULIP offers dual benefits of investment as well as insurance - under a single plan. This means a part of the invested amount is used for life insurance coverage while the remaining is invested in funds of your choice. SIP is solely an investment option and does not offer any insurance coverage to its investors.
2. Tax Benefits
When it comes to ULIP investments, you can avail tax deductions under Section 80C of the Income Tax Act. You can claim up to INR 1.5 lakh in tax on the ULIP premiums paid. On the other hand, Equity Linked Saving Scheme (ELSS) is the only mutual fund option that offers tax exemptions.
3. Investment Mix
Since SIP is entirely an investment instrument, the risk involved is comparatively high. To earn high returns, you (the investors) have to expose your investment portfolio to a higher risk. ULIP is thus a safer choice as it is primarily an insurance product. Moreover, the fund managers avoid investing in high-risk funds, thus making them a more reliable investment tool.
In ULIPs, if you realize that your funds are not performing well in the market, you have the liberty to switch from equity to debt and vice versa. This thus makes ULIPs flexible as you can make changes to your portfolio as per market performance.
SIP does not have such flexibility, and you (the investor) are not allowed to switch between the funds during the entire policy term.
5. Death Benefits
Since SIP is an investment instrument, there are no death benefits offered under it. On the other hand, ULIPs are primarily an insurance instrument and thus offer death benefits in case of your (the policyholder’s) sudden dismissal.
6. Lock-In Period
SIP has a lock-in period of three years while ULIP has a lock-in period of five years. The lock-in period in ULIP is high to make sure that the investors earn reasonably high returns due to rupee-cost averaging and the power of compounding.
It is highly advisable to stay invested for a long time, be it SIP or ULIP. These investments earn greater returns if you are invested in long-term plans. Hence, depending on your financial urgency and the goal you plan to achieve, you should then decide whether you want to invest in SIP or ULIP.
Based on the factors described above, ULIPs inevitably scores over SIP investments. Staying invested in long-term ULIPs will allow you to earn high returns, avail maximum tax benefits, and seek advantage of life insurance coverage.