The investment landscape in India is highly diverse, with investors having a range of options to choose from. You can invest in stocks, bonds, gold, real estate, mutual funds, and insurance policies based on your needs. Before making a decision, it is important to understand different investment avenues so that you can choose the better investment option for your needs. Two popular investment instruments are ULIPs and SIPs.
 

In this article, we will discuss these instruments and look at the ULIP and SIP to help you make the decision.
 

What are ULIPs?

A Unit Linked Insurance Plan (ULIP) is a life insurance policy that invests a portion of the premium into stocks and bonds. This allows you to get protection for your family and earn market-linked returns. A ULIP policy helps you generate wealth over the long term and offers tax benefits.
 

What are SIPs?

Systematic Investment Plans or SIPs are offered by mutual funds allowing people to invest in schemes in instalments. When you buy a SIP, you can decide the amount you want to invest and the time intervals after which you want to make regular investments.
 

ULIP & SIP

There are many ways to generate wealth by investing your hard-earned money.
 

• Type of instrument
  
  Mutual Fund SIPs allow investors to invest in a basket of securities in instalments. When you buy a SIP, you agree to invest a fixed amount at the agreed intervals. ULIPs offer the combined benefit of life insurance and wealth generation by saving a part of the premium paid in market-linked securities.
  
  Also, most SIPs invest in equity-oriented funds. When you invest in ULIPs ,you can choose between equity, debt, and hybrid funds.
  
  
• Lock-in period
  
  Unit Linked Insurance Plans have a lock-in period of five years. SIPs do not have a lock-in period except for Equity Linked Savings Schemes (ELSS).
  
  
• Governing authority
  
  SIPs are governed by the Securities and Exchange Board of India (SEBI). ULIPs are governed by the Insurance Regulatory and Development Authority of India (IRDAI).
  
  
• ULIP & SIP charges
  
  SIPs usually have an expense ratio of up to 2.5%. The charges of ULIPs include policy administration, fund management, premium allocation, and mortality charges.
  
  
• SIP & ULIP tax benefits
  
  When you invest in ULIPs, the premium paid by you qualifies for tax* deduction under Section 80C of the Income Tax* Act, 1961. If you have not made any other investments that qualify under this section, then the maximum ULIP plan tax exemption is the total deduction permitted under the section. Most SIPs do not offer a tax* deduction. SIP tax benefits are available only with ELSS SIPs.
  
  
• Ideal for?
  
  SIPs allow you to invest in market-linked securities and generate wealth. You can choose the SIP based on your risk tolerance and financial goals. However, if you are looking for a life insurance plan that also offers wealth generation opportunities, then opting for ULIPs is a better idea.
  
  
• Tracking the performance of the investment
  
  With SIPs, you can track the performance of the fund since the fund managers declare the holdings every three months. However, many ULIPs don’t declare holdings, making it difficult to track the performance of the underlying securities.
  
  
• Switching option
  
  All About ULIPs and SIPs?
  
  
  If you have understood the ULIP and SIP facts, then analyzing the best investment option should be easy. Here are some questions that you can ask yourself to analyze these two option
  
  
  • Do I need a life insurance cover or only investments?
  • For how many years do I want to stay invested?
  • What risk exposure am I comfortable with?
  • What financial goals am I working towards?


The answers to these questions can help you make the decision. Also, if you are planning to invest in a ULIP policy, then make sure that you purchase one from a reputed insurance company. Tata AIA Life Insurance Plans are popular among people for being feature-rich, affordable, and backed by a reputed and reliable company. You can take a look at our plans to choose the best one for your needs.


Conclusion


While Systematic Investment Plans are good instruments to generate wealth, they do not offer insurance. However, if you plan your investments right, then you can create a corpus for your golden years. However, a life insurance policy protects your loved ones from unforeseen events and ensures that they live a financially independent life even if you are not there. Hence, make sure that you assess your needs carefully before making a decision.


L&C/Advt/2022/Oct/2489