ULIPs: Disadvantages and Advantages
Two disadvantages what I can see in ULIP are,
- Relatively higher charges 4-5% (all inclusive) compared to 2-3% of mutual funds.
- Investment is relatively opaque. Means we are not sure which specific stocks/avenues they invest-in unlike MFs which has to mandatorily disclose which stocks they have invested in. This is because ULIPs are regulated by IRDA and MFs are governed by SEBI. It is open Secret that SEBI is far more investor friendly than IRDA. Well..does it really matter? I think yes. Because say, I don’t want for example, HDFC ULIP to invest only in HDFC.
Advantages of ULIP:
- You can switch from Equity to debt easily without incurring exit load and tax calculations.
- You are forced to invest long term 10-15 years…which you may not, considering high liquidity of MF. (As you know, compounding effect is very powerful when you invest in long term, we will generally get very impressive returns after 10-15 years.)
Now..which You have to invest in. Difficult to answer. Each company has multiple products and each product can be customised (you have switch option within equity itself) depending on our requirement. Also making it complex is the fund manager and his history of performance. No straightforward answer.
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