Categories
Loans

Why should you use an annual bonus to repay homes?

home loans

Home loans are an integral part of home purchases due to high prices; many people cannot buy the property without the loans. The home loans are charged at interest rates of 6-9% per annum. The interest rates on the home loans are continuously declining as the Repo rate of RBI is continuously decreasing. The interest rates are becoming more and more attractive to home buyers. If the borrower pays the number of installments early, the buyer can avail rebate on the home loans amount and thus can avail discount on the repayment value. Therefore loans can be taken either on the fixed interest rates or else floating interest rates according to the borrower’s choice. In case of faster repayment of the loan amount, the borrower can save money on the interest repayment. The loans can be taken for a tenure of a maximum of 30 years, depending on the borrower’s age. These days, most banks have withdrawn the penalty being charged on the early repayment of installments; in fact, the banks offer a rebate on early repayment of the loans; thus, the borrower can save money against early repayment.

The banks charge a penalty on the non-repayment of the installments or the delay in payment of loans beyond the due date. Due to the banks’ bad debts are on the rise, banks expect that the borrower should repay the loans as early as possible. The banks approve the loans of only applicants with a minimum credit score of 700 points and above. However, sometimes banks may approve the applicants’ loans with a lower credit score on a higher interest basis. There are some lenders amongst the NBFC’s who charge home loans interest rates as high as 18%. The borrower can avail of competitive interest rates only in case of a good credit score. It is always better to prepay the installments as the borrower can become early debt-free from the liability of the loan. Banks also charge processing fees on the loans for the cost required for verification like credit score, third party verification of the documents, physical verification of the property.ETC. The applicant can avail of tax benefits under the income tax act 80C. The government of India encourages people to buy properties by availing of loans. The government aims for “housing for all” for the betterment of society and to boost the real estate sector.

Reasons for utilizing the annual bonus for early repayment of EMI:

  • To become early debt-free:

Annual bonus is the bonus amount paid by the companies as part of the employee’s overall performance. The better the performance, the better is the bonus amount paid to the employee. Thus, if utilized for the early repayment of home loans, the tenure of the loans can get reduced, and the borrower can become early debt-free. Therefore it is always better to invest the excess amount gained for the faster payment of installments.

  • Rebate gained on the installments:

The borrower can expect a rebate on the home loans to pay for the early repayment of the loans. As the bank’s NPA[non-performing assets] are increasing, there is a possible effect that banks encourage the borrowers to repay the loans as early as possible. Banks provide the rebate on the installments being paid. Thus the borrower can save money on the interest repayment and can become early debt-free.

  • A better choice to prepay loans:

It is always recommended to repay the loans early as the borrower in the initial stage of prepayment can save money on the repayment of interest. The borrower should use the EMI calculator to estimate the amount of the installments. In the very rare case, there are banks that charge foreclosure charges; thus, the terms and conditions of the loans should be read thoroughly by the borrower. If no penalty is charged, the borrower should try to repay the amount as early as possible to become early debt-free.

  • Improvement in CIBIL score:

The borrower’s credit score may get improved in case of the early payment of the installments. A better credit score helps the buyer to avail of future credits easily. Thus, utilizing the excess amount gained as an annual bonus can help the borrower improve their credit score even better. And also, for the future loans availed, the applicant can better negotiate the interest rates being charged, thus helping the borrower with the financial benefit through the improvement of credit score.

Conclusion:

The banks can provide the rebate to the borrower on early repayment. Thus the borrower can save money on the interest repayment, as banks are keen on recovering the money as early as possible. Thus, it is highly recommended that the borrower use the credit score to repay loans installments faster.

Categories
Insurance

When is the right time to buy life insurance policy?

life insurance

Someone has rightly said, “Planning to support your loved ones, even when you are not there, is the real sense of responsibility”.

It is interesting to note that people often refer to life insurance as ‘love insurance’ because it secures the future of your family. While some people may delay taking term insurance others may completely ignore it only to regret it later.

If you are wondering when is the right time to buy a life insurance policy, allow us to get you at pace with all the relevant information. So, let’s get started.

What is Life Insurance? 

This is a contract between an insurance company and the policyholder. Here the insurer assures to pay a promised sum amount to the beneficiary upon the death of the insured person.

Types of Life Insurance Policies: 

  • Term insurance
  • Term insurance with return of premium
  • Unit Linked Insurance Plans
  • Endowment plans
  • Moneyback policy
  • Whole life insurance
  • Group life insurance
  • Child Insurance Plans
  • Retirement Plans

When is the Right Time to Buy a Life Insurance Policy?

The answer to this question is extremely simple.

You should start investing in term insurance as soon as you can. The reasons for starting early are plenty.

If you invest in a life insurance policy early on in life, the premium payout will be lesser. It is a general notion among buyers that one should invest in life insurance only once they have settled in their life. But if you choose to do so, you may have to pay a higher premium.

Not just that, but there could be additional expenses at that state in your life like your children’s higher education, unexpected medical expenditure, and so on, which may put you in a stiff spot financially.

It is a wise decision to invest in a personal or joint life insurance policy as soon as you have dependents. This could include your retired parents, spouse, or children. On a rough estimate, a person in his early 30s would have to pay about ₹ 8000 for a term cover of ₹ 1 Cr whereas a person in his 60s might have to pay more than ₹ 11,000 for the same amount.

Not only life cover, but a good insurance policy can give you returns as well as double up as a retirement plan. In this dynamic market, you can go for the most profitable term policies when you start early.

Benefits of Buying a Life Insurance Policy

Some of the top benefits of a life insurance policy are –

  • It provides financial security
  • It secures your child’s future allowing you to give them the best education.
  • Life insurance prevents the burden of a loan over your family’s head.
  • If your life insurance scheme gives you a pension upon maturity, it works as a good retirement plan
  • Assured tax benefits

Several financial companies offer a variety of life insurance policies with multiple benefits. You can take some time to compare one term insurance with another and choose the best one that suits your needs.

With a simple policy, give your family the financial assurance they need.

Categories
Investment

Gilt Funds – Overview, Investment Process, Risk and Returns

Gilt Funds

Investing isn’t rocket science, but that doesn’t mean investors should invest in any scheme without understanding its major aspects. A lot of people do not realize that investing is probably of the one most significant investment decisions of their lives and hence they must understand how much risk they can take before investing in any type of scheme. The biggest question that lies in front of first investors is whether they should choose an aggressive investment approach or stick to a conservative mode of investing. However, it is now possible for investors to adopt the conservative investment approach even after investing in modern investment avenues like mutual funds. Investors who do not wish to invest in conventional investment avenues but also want to stay away from the dangers of market volatility can consider investing in gilt funds.

What is a gilt fund?

While equity schemes invest a majority of their investible corpus in equity and equity related instruments of companies, debt funds like gilt funds aim to generate capital appreciation by investing in fixed interest-bearing securities and bonds issued by the Government of India. According to SEBI (Securities and Exchange Board of India), gilt funds “invest exclusively in government securities. Government securities have no default risk. NAVs of these schemes also fluctuate due to change in interest rates and other economic factors as is the case with income or debt-oriented schemes.”

How do guilt funds work?

The GOI (Government of India) visits the RBI (Reserve Bank of India) whenever it needs cash. The RBI reaches out to banks and insurance companies for sourcing finances and then loans the money to the government. In exchange for the loan, the government issues bonds that have a fixed maturity date. A gilt fund invests in such government securities and earns returns by returning these securities upon maturity.

What are the risks involved in investing in gilt funds?

Gilt funds have almost zero risks since they invest in government back securities. Investors get an opportunity to invest in government securities to which they may not have direct access. Since the government always repays its debts, these funds do not carry any credit risk. The government is the issuer of the underlying securities and always ensures that its sticks to its obligation. This is what makes gilt funds ideal for investors with a low-risk appetite. Gilt funds have offered decent returns in the past with very little investment risk.

Who should consider investing in gilt funds?

The government backed securities in which gilt funds invest usually have a medium or long maturity period. They are far less risky than bond funds which allocate a portion of their assets to corporate bonds as well. Investors who want to invest in such fixed-interest generating government securities can consider investing in gilt funds. Not everyone wishes to risk their finances with volatile equity markets and such investors too should consider investing in gilt funds. If you are a mutual fund investor whose mutual fund portfolio is more focused on only a single asset class, you should consider adding gilt funds to your portfolio so that you get the much needed diversification.

Before investing in gilt funds, investors must first consider whether they want to invest via SIP or lumpsum option. A lumpsum investment allows investors to buy more units at the current NAV. A Systematic Investment Plan (SIP) on the other hand ensures that investors get to invest small fixed amounts at regular intervals in gilt funds. They can also decide how much they want to invest so that at the end of the investment journey, they have achieved their investment objective.

Categories
Finance

Everything you Need to Know About Bihar Student Credit Card

student credit cards

Credit cards are innovative tools that allow you to spend money that you might not have in your savings account. This expenditure is made possible due to a line of credit extended by the lender based on the understanding that you will repay the borrowed funds with interest in addition to other fees associated with the usage of the credit card.

Credit cards come in handy for all but are of particular use for young people who are students. This is due to a number of reasons, the primary of which is that they are suddenly faced with a multitude of expenses that they might have to pay for themselves.

Education Is one key expense which is why student credit cards are nifty and viable purchases.

Understanding the Bihar Student Credit Card Scheme

The government of Bihar was able to recognize the expenses associated with education that young people faced which is why they launched the Bihar Student Credit Card scheme in 2016.

This scheme makes credit cards available to students seeking to pursue higher education by providing them with financial assistance made available by credit cards.

The scheme operates on the understanding that the government will provide an education loan that amounts to up to INR 4 Lakhs for students who have successfully completed their academics till up to grade 12.

What is particularly enticing is the fact that the interest applicable on the loaned money amounts to 0 percent!

Bihar Student Credit Card – Apply Online

Bihar Student credit card apply online method is fairly straightforward.

  • You must first visit the appropriate website.
  • Register yourself as a new user and fill out the asked for details.
  • You will then receive a one-time password (or OTP) on the mobile number and email address you registered with.
  • After you key out the OTP, you will be redirected to a new page where you must fill out personal details.
  • Once you submit your personal details you will see three options appear.
  • Click on the third option as it pertains to student credit cards and fill out the required details.
  • Once complete, select the ‘submit button.
  • You will then receive a unique ID number which is sent to your registered mobile number.
  • You will also receive a PDF which is a copy of the form you submitted which also lists the documents you are required to submit later on in the application process. This PDF will be sent to your registered email address.

Documents Needed to Apply for the Bihar Student Credit Card Scheme

  • Grades 10 +2 mark sheets.
  • Certificate of residence.
  • Certificate of being selected or accepted to a higher academic institution.
  • A detailed document that outlines the fees associated with higher education has been issued by the academic institute.
  • PAN card.
  • Self-attested copies of your application along with passport size photographs.
  • Statements of your parent’s bank accounts from the past 6 months.
  • Form 16 and family income certificate from the previous year
  • Income tax return pertaining to the previous two years.
  • Proof of identification in the form of an Aadhar Card, passport, or voter ID.

Conclusion

Eligible students must take advantage of the student credit card Bihar scheme as it will allow them to pursue their academic dreams and ambitions such that they can actually make a decent income post completion of their academic pursuits. Go to the Finserv MARKETS portal in order to have a clearer understanding of the same.

References

Hyperlinked website – http://www.7nishchay-yuvaupmission.bihar.gov.in/

https://www.bajajfinservmarkets.in/credit-card/student-credit-cards.html

https://saran.nic.in/scheme/bihar-student-credit-card-yojana/

BIHAR STUDENT CREDIT CARD

Categories
Insurance

Should You Buy a Term Policy after You are 50?

Term Policy

While setting financial objectives and goals throughout your career, purchasing a term life insurance is among one of those plans that is ideally executed at a young age. That is simply because; buying a term policy can become inconvenient and costlier as you get older. Generally, the premiums will not be as low for a person purchasing the policy in their 50s as compared to a person opting for a policy in their 20s or 30s. However, taking a term policy late in life can still act as a safeguard substitute of payments towards the policyholder’s dependents in the event of his/her demise.

Is buying a term policy above the age of 50 the right decision?

The sole purpose of taking a term policy is to ensure that your dependents are not left helpless by your demise. But taking life insurance coverage after crossing the age of 50 is relatively unusual. However, there are certain term policies specifically for those who fall in that category and these plans have great advantages as well. Nevertheless, there are still questions over whether these term policies are wholly beneficial to those who are nearing the retirement age. So, here’s a look at the benefits of taking a term policy even after you turn 50:

  • Financial security of your dependents/loved ones: By taking a life insurance policy after the age of 50, he/she may be able to leave behind a sum of money at the time of his/her passing. If the policyholder has kids who are not financially settled, those funds might help them survive without their primary dependence. Here, the term policy insurance can play a huge role in securing the future of the policyholder’s loved ones.
  • Alternative to income from pension:In most cases with government workers, the income received from the pension for spouse or children may come to a halt after the policyholder’s demise. Hence, the ‘death benefit’ from an over 50s life cover can be a suitable replacement for regular income for the family. Also, a term policy with survival benefit options allows the policyholder to enjoy its benefits even during his/her lifetime, by providing monthly income on attaining 60 years of age.
  • To pay off liabilities and debts: Term policies can also be taken by those who have outstanding debts that need to be paid off. It can be considered as an excellent option for those above 50 if they owe money to others or are still paying off their loans. Following the policyholder’s passing, the insurance from the term can pay for the money owed by him/her.
  • Continuing work after retirement: One more situation where term insurance benefits might come in handy is when the policyholder is officially retired but continues working owing to his/her financial responsibilities. A term policy can provide income for the family even after his/her passing and the plan can preferably be taken if the person is the sole breadwinner of the family.

Even though most term insurance policies provide protection to the close ones of the policyholder at his/her untimely departure, insurance companies classify deaths into various categories. Based on whether the deaths are covered or not covered is then decided but in certain cases, the insurance company may decline to pay depending on the life insurance term plan. If your family is unable to receive the sum assured in your absence, buying a term plan will be considered meaningless. Hence, it is vital to understand and go through the fine print of your policy before purchasing it.

What is the term insurance age limit?

When purchasing a term insurance policy, it is also crucial to know the term insurance age limit as the investment plan has a minimum and maximum eligibility age. A term policy can be purchased from anywhere in the range of 18 to 65 years of age. It is also possible to opt for coverage until the age of 99.

Categories
Finance

5 reasons to start investing in gilt funds

start investing

Mutual funds are largely categorized as equity and debt. Although there are several other mutual fund categories equity and debt are two of the most sought after investment avenues. Equity funds are best suited for investors with a very high risk appetite and a long term investment horizon. These schemes predominantly invest in equity and equity related instruments to generate capital appreciation. Debt funds on the other hand invest in bonds, corporate securities, debentures, repo rates etc. to help the scheme earn returns.

A well-diversified mutual fund portfolio has the right mix of equity and debt. If you have an equity heavy portfolio and looking for a debt scheme that is relatively safer as compared to other mutual fund schemes, you can consider investing in gilt funds.

What is a gilt fund?

A gilt fund is an open ended debt scheme which predominantly invests in government securities to achieve its investment objective. Since gild funds invest majority of its assets in government backed securities, they are considered to be the safest investment product in the debt scheme category. The underlying securities of a gilt fund may hold an average maturity period of they may vary from medium to long term. Since the average maturity period of a gilt portfolio spans over medium to long term, they are ideal for investors with a long term investment. Although gilt funds are considered to be a safe investment option, they aren’t entirely risk free. Since they have a long maturity rate, the performance of a gilt fund may get affected by fluctuations in the interest rates. When there is a noticeable fall in the interest rates, gilt funds tend to offer better returns. Likewise, a rise in the interest rates can make gilt funds a volatile investment.

 Why should you invest in gilt funds?

Here are 5 primary reasons why you should invest in gilt funds –


  1. Invest in government backed securities

As mentioned earlier, gilt funds invest in government backed securities. A retail investor may not have the resources to directly invest in such government securities. By investing in gilt funds, investors get an opportunity to gain exposure to instruments which otherwise they have no access to.


  1. Almost zero credit risk

Government always pays back all the money that it borrows. This makes investments in glit funds almost risk free. Investors who do not wish to risk their finances with volatile investments can consider investing in gilt funds. These funds invest in securities which have a very high credit rating and investors may not have to worry about losing their money  by investing.


  1. Better capital appreciation

Gilt funds have offered far better returns than any other debt scheme. In the past gilt funds have offered double digit returns. Some have even performed better than equity funds which makes them a safer investment scheme delivering better returns than high risk investment avenues.


  1. Target long term goals

Gilt funds aren’t like other debt funds which are usually considered by investors to tend to their short term financial goals. Investors who have a long term investment horizon but do not wish to invest in equity funds due to their volatile nature can consider investing in gilt funds.


  1. Invest in a systematic manner

Investors can invest in gilt funds via SIP. Systematic Investment Plan is an investment approach where retail investors can save and invest a fixed sum at regular intervals till their investment objective is accomplished.

Gilt funds may invest in government securities, but they aren’t entirely risk free.

Categories
Investment

What ETF should I invest in 2021?

invest

There are a plethora of mutual fund schemes to choose from, but the fact remains is that one should only invest in a scheme which may hold the potential to help with their financial needs. The term wealth creation may have different interpretation for different people. Some may want to be build a long term corpus of Rs. 20 lakhs whereas some may want accumulate corpus worth Rs. 1 crore. If you want to build wealth smartly and without investing hefty amounts all at once, you may have to start investing early. If you are someone who carries a high risk appetite and wish to invest in a scheme that follows a passive investment strategy, you can consider investing in exchange traded funds.

What is an exchange traded fund?

Mutual funds can be broadly categorized as active and passive funds. Active funds are open ended schemes where the fund manager is actively involved in trading with the underlying securities of the scheme to allow it to generate returns over the long term. On the other hand, passive funds like ETFs aim at generating capital appreciation by mimicking the performance of their underlying benchmark.

The units of exchange traded funds (ETFs) can be traded at the stock exchange just like any other company stocks. These are a little different from other mutual fund schemes where the investor can either buy or sell fund units only once in a day. On the contrary, investors can buy / sell their ETF fund units at their current market price during trading hours.

Which ETFs can you invest in 2021?

Depending on your investment objective, risk appetite, investment horizon and existing liabilities you may choose to invest in either (or all) of the following ETFs to target your financial goals.

Equity ETFs – Equity ETFs are open ended schemes that replicate the performance of stocks belonging to a particular index  with minimum tracking error.

Gold ETFs –Gold exchange traded funds can be a smart alternative for investors who wish to invest in gold  without having to do deal with the hassles of owning gold in physical from. One can now invest in gold as an asset class without having to buy it in actual form through gold ETFs.

Debt ETFs – Debt exchange traded funds invest in bonds, fixed income securities and other debt related instruments for generating capital gains.

International ETFs – International exchange traded funds invest in equity and equity related instruments of companies listed outside India. These funds invest in foreign securities or try to replicate the performance of a foreign fund to achieve their investment objective.

Why should you invest in exchange traded funds?

These days investing in conventional investment avenues doesn’t make sense as the interest rate on offer is outrageously low. Also, ETFs are passive funds which means the fund manager only reshuffles the investment portfolio from time to time. Since there is no active participation from the fund manager in managing the fund, the expense ratio of ETFs is relatively low. A low expense ratio means deductions from your capital gains will be less as compared to active funds.

Investors who do not want their investment portfolio to be actively managed, if they do not want the performance of their scheme to get affected by human biasness and want their returns to remain unaffected from human emotion, they can consider investing in ETFs. That’s because ETFs are designed in a way to replicate the performance of its underlying assets by investing in the same way as these securities invest in their benchmark.

Categories
Finance

What ETF pays the highest dividend?

Savings Scheme

Most of us are familiar with exchange traded funds as passive funds which track the underlying index to generate returns. However, very few are aware about dividend yielding exchange traded funds. The dividend paying process is pretty much simple, these ETFs invest in the underlying securities of dividend paying stocks and when these stocks roll out dividends, the fund manager collects them distributes it to mutual fund investors who have invested in dividend paying ETFs. Investors can either opt for a dividend distribution plan or they can even consider dividend reinvestment option where the money is invested back in the scheme and may allow an individual’s investments to benefit from power of compounding.

Why dividend ETFs?

As mentioned earlier, dividend ETFs are meant to invest in a basket of stocks that have the potential to yield decent dividends. The reason dividend ETFs exist is so that retail investors get a chance to earn some dividends by investing in passive funds like ETFs. These funds only invest in stocks that may offer exceptional dividends to investors. Apart from dividend yielding stocks, these ETFs may also invest in real estate investment trusts (REITs).

Depending on the fund manager’s decision and asset allocation strategy of the scheme, the portfolio dividend ETF may consist of regional as well as global dividend stocks. The indices which these dividends track for income generation are known for providing above-market dividend yields and much more liquidity than normal ETFs.

Benefits of investing in dividend ETFs

Dividend ETFs are passively managed funds which means that investors have to pay a low expense ratio for owning these funds. A passively managed fund usually has a low expense ratio as compared to active funds where the fund manager has more involvement than and is actively involved in buying and selling securities to help the scheme achieve its investment objective. However, the underlying benchmark or index which the ETF tracks majorly covers those companies that have a proven track record of providing regular dividends. Dividend yielding ETFs may also invest in bluechip company stocks that are anticipated to less risky than mid and small caps.

A low expense ratio means investors can achieve higher capital appreciation than those funds that levy a high expense ratio. Also, ETF units can be traded at the stock exchange just like the stocks of publicly listed companies. This makes them more liquid than other mutual funds like ELSS (Equity Linked Savings Scheme) which comes with a predetermined lock-in period and investors cannot sell units of this fund for at least three years.

Which ETF funds have offered high dividends?

Of all the ETFs, equity ETFs have delivered good returns in the past. Investors must not only look a fund’s past performance before investing. This is not an apt way to invest in mutual funds as past performance of a scheme doesn’t determine its future performance. Investors who are new to investing and need further assistance in making an informed investment decision should seek professional consultation-.

Categories
Finance

How to visit Petra in Jordan? A brief guide for first-time travellers

mutual funds

If visiting ancient archaeological marvels interests you or has been on your bucket list for quite some time, you must visit Petra in Jordan at least once in your lifetime. One of the seven wonders of the modern world, Petra’s story is magical. An architectural marvel carved into a majestic rock mountain, hidden away in a desert wadi, the city of Petra was the capital of the Nabateans’ empire.

If you plan next holiday destination, it is crucial to start planning your finances now. Until then, here are the details on Jordan tourism, the best time to visit Jordan, Petra, and places to visit in Petra, so that you can set your financial goals and itinerary accordingly.

Places to visit in Petra, Jordan

There are many breathtaking places to visit in Petra, provided you are ready to endure a little bit of heat.

  • The most famous landmark is Bab As-Siq, or shaft, in English. The As-Siq corridor was formed when tectonic forces broke two mountains in half, and it is magnificent, to say the least
  • A trek to the Ad-Deir or monastery is a must if you have an adventurous streak. Climb the 800 steps to revel in the view from the top
  • The Colonnaded street with its Roman influence may interest history enthusiasts
  • The famous Al Khazneh, or treasury in English, was built for King Aretas III. It is carved out of a sandstone rock face

While these are listed as some of the best places to visit in Petra, you will find countless other options if you’re staying in Petra for a longer period.

Ways to visit Petra in Jordan

There are two ways to visit Petra in Jordan.

  • From Amman or Aqaba in Jordan
  • From Tel Aviv or Eilat in Israel

Travel companies in all four cities offer packages including transport, stay, and options for places to visit in Petra. However, for a hassle-free experience, check out packages by the official Jordan tourism board.

Best time to visit Petra in Jordan

The city is located in a desert, and summers in Petra can be unbearably hot. Therefore, the best time to visit Petra in Jordan is in the spring (March to May) or autumn (September to November) months, when the weather is pleasant.

Cost of tickets while visiting Petra in Jordan

A one-day pass to visit Petra costs JD 50 (USD 70; a little more than INR 5,000) per person with an additional JD 5 per day, for the second and third days. However, you can get a JD 40 refund if you return the next day. Children below 15 years of age get free entry. You can hire tour guides for JD 50–100.

To avoid hidden or additional costs, it is advisable to check prices with the Jordan tourism office online or on-site.

Start saving for your dream vacation

Petra in Jordan is a must-visit travel destination. There are activities for everyone and some remarkable historical expeditions to choose from. You can start saving and investing right away, through mutual funds and a systematic investment plan to reach your financial goal of visiting this wonder. You can also reach out to a good financial advisor that can help you with your broader financial plans to ensure that your financial goals are met.

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Finance

ULIP vs Mutual Funds: Things an Investor Should Know

Mutual Funds

A Brief Overview 

Investors seek to invest their money in varied investment tools keeping in mind their investment goals which can differ. Unit Linked Insurance Plans (or ULIPs) and Mutual Funds are two such investment tools that have been explored below.

Understanding ULIPs

ULIPs cater to both the insurance and investment goals of their policyholder and allow for wealth creation over expansive stretches of time. Long-term financial goals including a child’s education or marriage fund can be fulfilled with investments made in a ULIP. Plan holders are expected to pay premiums at regular intervals (weekly, monthly, quarterly or yearly) in order to invest in ULIPs. Premiums paid are invested in several tools including stocks and bonds. The performance of the market is capable of altering the value associated with the fund. Upon maturity, the policyholders are paid the fund value. Else, if they die by the time the policy matures, the sum assured or fund value is paid to their beneficiary based on which is higher.

Understanding Mutual Funds 

Mutual fund plans allow individuals to invest their money in a tax-saving mutual fund wherein the premiums invested are of varied securities ranging from bonds and stocks to money market instruments and so on. The performance of a mutual fund is congruent with the performance of the underlying securities.

 ULIPs vs Mutual Funds 

  • Tax norms – Returns generated via ULIPs are tax-free under Section 10 (10 D) of the Income Tax Act. Long-term capital gains and short-term capital gains are levied on mutual funds which vary based on the type of securities that underlie the funds.
  • Lock-in period – ULIPs are governed with a lock-in period that ordinarily amounts to five years and investors cannot redeem their investments prior to this time. Mutual funds in comparison are ordinarily open-ended and don’t have lock-in periods barring ELSS funds whose lock-in period amounts to 3 years.
  • Charges – ULIP has a high entry load in the early stages as there is a fund management charge in addition to insurance premiums expected to be paid. Mutual funds also incur professional management fees however, they also charge operational fees which are collectively called expense ratios.
  • The ideal time to invest – Mutual funds are ideal investments for those looking to fulfill short or long-term goals, build wealth, or generate reasonable returns on investments. ULIPs make sense for those looking for a tax-saving investment, a life insurance policy, and have a long-term horizon.
  • ROIs- Returns on ULIPs can be wide in their spectrum as they are based on investments made in equity, debt, or a combination of the two. Mutual funds generate returns on investments that are dependent on the type of scheme selected and the return can range from one that is low to one that is high. Mutual funds don’t guarantee a minimum return.

Conclusion

Investors must assess their financial profile and goals prior to investing in a given investment plan. Finserv MARKETS serves as the perfect place to pursue investment plans currently on offer in India.