Most of you probably consult friends and family when it comes to making investments, specifically year-end investments that help in saving taxes. While great advice could come from any corner, it’s your money, so we’d suggest you look at some basic facts of investments. For starters, don’t mix investments with insurance. Insurance is great to have but don’t count on it to multiply your money.
ULIPs can be a bit confusing, from the premium paid, mortality charges (the insurer deducts charges towards life insurance), administration expenses and fund management fees. So only the balance amount is invested. ULIPs have high first year charges towards acquisition, including agent commissions. In order to evaluate the return generated by a ULIP and thus compare it with any other investment, you need to take into consideration only that portion of the premium that is invested in a fund.
In ULIP, the mix of investment and insurance prevents savers from having a clear cost-vs-benefit understanding of either of the two components. Typically, ULIPs have a five-year lock-in period but terminating the policy early affects returns adversely, forcing you to commit for a ten-to-fifteen-year period.
Equity Linked Savings Schemes however have predictable costs and are fairly simple to grasp returns. All mutual funds are transparent about how the specific fund operates and what they invest in. ELSS funds provide both tax-saving benefits as well as higher returns from equity investments, and so are preferable as an investment option.
Here’s a detailed comparison between ELSS and ULIP, which will help you make an informed investment decision:
Just like ELSS v/s ULIPs, we’ve also done a comparison between ELSS and PPF.
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*Mutual fund investments are subject to market risks, read all scheme related documents carefully.