ULIP or Equity MF – Which
one better?
I have often seen
very confused investor for which one is good for investment either ULIP or
Equity MF. Both are long term investment product. Investors often lure with the
ULIP for very catching word insurance.
Whereas equity mutual
fund do not offer any insurance but great return as the efficient wealth
creator in long term.
Although, Unit-linked
insurance plans (ULIP) offers many types of funds from equity to debt segment.
If you compare its return over the five year period, it has performed very bad
when we compare it with equity fund return.
Recently a very
informative financial magazine has done a study about the return of ULIP and
equity mutual fund schemes. The Top 10 ULIP funds has given an average
anuualised return of 16.61% while mutual fund schemes has delivered an average
return of 22.20%. If we compare top 25 ULIP funds and top 25 equity mutual
funds, ULIP delivered an average return of 15.28% and MF schemes return has
been 20.71% in the same period.
ULIPs published their
NAV before adjusting fund management cost and other cost while equity mutual
funds published NAV after adjusting all cost. It is the reason investors are
not getting right comparison between ULIP and equity MF funds. Returns from
ULIP would be more worst after deducting charges like premium allocation
charge, mortality charge and other charges. These charges are different for
ULIPs managed by various financial entities. Only fund management charge is
adjusted in unit price of ULIPs funds. MF schemes unit prices are calculated
after deducting all expenses. This makes equity mutual fund return more
superior than ULIP funds.
The fund management
charge, of around 1.35% may attract investor towards ULIP as it appears lower
than expense ratio of equity mutual funds. But when we consider other costs of
ULIP- in most cases- it goes up to above 3% in the initial years of investing
in ULIP. In an analysis of 237 ULIP funds, more than 50% of ULIP funds
underperformed the Sensex over a period of 5 year ended in Feb 2015.
IRDA has put some cap
on various charges after 2010. But still the costs of ULIP are much higher than
equity MF. If you are looking for good long term investment option with low
cost, equity mutual funds are still good choice.
If you have doubt about investment
product and want more information regarding investment or you need investment
services, feel free to ask us. We also conduct the seminar on investment and
financial planning. If you are interested for conducting seminar in your city,
just drop the mail.
Warm regards,
Arvind Trivedi
Certified Financial Planner
