Life Insurance Vs Mutual Fund

Aug 20, 2018 | 3 months ago | Read Time: 4 minutes | By iKnowledge Team

life-insurance-vs-mutual-fund

When it comes to investment choices, every individual is faced with numerous choices. However, where you plan to invest the money and how much is a personal choice. With an extensive range of financial products at your disposal, selection of a particular product could be an overwhelming affair. What holds primary importance amidst this are your goals. You could be a single young investor or one with dependents to look after or perhaps someone who aims to make investments to meet specific financial targets. Therefore, the goals differ from one individual to the other. A number of times people tend to confuse the basics of financial products, for example,Life insurance vs mutual funds. Both of these are schemes that fulfil different financial needs.

What is the difference between Life Insurance and a Mutual Fund?

Life Insurance

Mutual Fund

  • Meaning

Life insurance is a protection scheme that lets you secure the financial future of your family in your absence.

  • Meaning

A mutual fund is an investment tool that helps you enhance your wealth through market linked investments.

  • Goal: Dependents

life insurance policy is a vital component of a person’s financial portfolio, as it safeguards the financial future of your dependents, your parents or children.

  • Goal: Financial Goals

Mutual funds are a rewarding investment to meet your long-term financial goals, be it for education, purchasing a property, starting a business, etc.

  •  Death Benefit

A life insurance policy involves a lesser amount of risk as compared to mutual funds. There is a guaranteed death benefit.

  • Fund Manager

A mutual fund does not guarantee does not provide any death benefit. However, it provides a fund manager.

  • Low Returns
  • If a life insurance plan is used for the purpose of investment, it is not only expensive but also does not promise returns similar to mutual funds.
  • Maximized Returns
  • Since a mutual fund offers the option of diversification of funds, you can maximise your returns without being dependent on a single fund for growth.

Hence, the importance of a life insurance policy cannot be overlooked. Alternatively, mutual funds are a rewarding investment to meet your long-term financial goals. Hence, choosing the former over the latter is not a smart decision.

What Should You Choose?

If you are still in a fix about choosing between a life insurance policy and a mutual fund, you need not feel confused. While each financial product holds distinctive benefits, it is imperative to understand each product in detail first. When it comes to any decision related to purchasing a financial product, it is important to be aware of what each has to offer and how it would benefit you in the term period you require. After all, it is your hard-earned money that you’d remove from your income and park into a specific scheme.

In order to assist you better on this front, it is essential for you to know about another product which is the ULIP plan. You can reap the benefits of both life insurance and mutual funds by investing in a Unit Linked Insurance Plan or ULIP. A ULIP provides a life insurance cover as well as a market linked investment under the same plan. A part of the premium paid towards a ULIP  is utilized to provide you a life cover while the rest of the corpus is invested in the  markets to generate profits. ULIPs are a great investment choice, as the policy holder can avail dual benefits of life insurance and investment returns from the equity / debt market. Although ULIPs invest your money in the equity and debt markets, they carry comparatively lower risks as the funds are managed by experienced fund managers just like mutual funds. Furthermore, policy holders also have the options to choose ULIP funds according to their risk appetite and financial needs. For example, Aegon Life offers iInvest plan which is a ULIP plan that offers a combination of investment as well as protection. This plan also provides flexibility which works well even for a first-time investor. It also encompasses tax benefits and you can start investing in the same with just Rs 2000 a month. You can choose from 6-unit linked funds that are in line with your investment goals.

Ideally, a sound financial portfolio should incorporate both life insurance as well as market-linked investments. Equity market investments are an effective means to boost your wealth in order to meet important financial goals of life. Rather than going through the hassles of making two different premium payments to separate policies, buying a single ULIP is a smart choice. If your goals align with what a life insurance plan and a mutual fund have to offer, this product would prove to be beneficial for you. ULIPs also offer the flexibility to adjust your returns as you pass through different stages of life. Chalk down your requirements in detail and after conducting an analysis , make the smart choice and enjoy the best or both worlds.


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