Guide on How to Change the Mutual Fund SIP Amount on a Periodic Basis

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Mutual Fund SIP

Mutual funds are volatile. Considering this volatility, some individuals often opt to invest in ULIP (Unit Linked Insurance Plans) while others stick to a SIP (Systematic Investment Plan). A comprehensive ULIP vs SIP explanation does immediately come down to the type of investor in question.

Both these mutual funds can be utilized optimally for the best possible returns with the right investment mindset and strategies. For an individual investing in ULIP and another investing with SIP, high returns can be guaranteed only with proper utilization of their investments across various factors.

ULIP & SIP: Perks and Drawbacks

Basics

Unlike the ULIP, SIP is not an investment scheme or tool. It is a way to invest in a mutual fund, precisely, in an equity mutual fund. SIP allows the investor to allow a certain amount regularly in a specific relative scheme. In simpler words, it is how the investment is divided and managed across the equities.

The ULIP is a mutual fund scheme that includes both equity investment and insurance. It is a policy, where the policyholder pays a premium. A portion of this premium goes towards life insurance. The remainder is used in equity investments. An investor can choose between an equity-oriented and an insurance-intensive ULIP.

The policyholder pays the premium either on a monthly or a yearly basis.

Considering this pointer while adjudging ULIP vs SIP, ULIP is the more conservative option while SIP is riskier, although it can generate much higher double-digit investment returns.

Lock-in Periods

Lock-in periods or maturity for ULIP generally come up to 5, 10 or 15 years. The policyholder continues to pay the premium throughout the term.

There are numerous types of SIPs and therefore varied lock-in periods. A SIP like the ELSS (Equity Linked Savings Scheme) has a maturity period of 3 years.

Although there are some financial institutions that allow investors to delay A ULIP against nominal penalty charges, there is no such window in the case of SIPs. A SIP investor will be unable to withdraw the sum invested before the maturity date.

Tax Exemptions

Considering that the ULIP includes a life insurance portion, an investor can apply for tax exemptions on the insurance premium as per sections 80C and sub-sections 80CC and 80CCE. The total amount of deductions under Section 80C in a financial year is Rs. 1.5 Lakh on the sum total of investments which can be tax exempted.

Section 80C also applies ELSS. This is the only SIP which qualifies for tax exemptions.

Asset Management

Mutual fund investments require planned fund allocation and utilization. Individuals invest via financial institutions where they often resort to asset management services. That is, they delegate professionals to assist and suggest the best mode of investment to maximize returns.

Both the ULIP and SIP require strategic investment. Asset management companies provide the necessary support to ensure optimal returns. However, considering this ULIP vs SIP debate, the former does not mandate as much infringement as the latter.

Which Investment Plan is Better?

There are numerous SIP plans available for investors now. These options are seeing multi-fold yearly increases in the number of investors. The simple reason behind this growth comes down to the possibility of exceptionally high returns.

A strategic investment when going forward with an SIP is to invest long-term. Considering that the share market is bound to reach new highs over the period of a decade, a similar timeline is sure to generate exceptional gross returns.

As for a ULIP, an individual should opt for longer investments for both, a higher premium as well as better returns from equity. On average, the Advantages of ULIP is that it can generate much more than the average 5% returns, normal for basic life insurance plans.

So, sorting out which is better between ULIP and SIP, it depends on the investor and the investment strategy.

However, both these investment plans are relative to future returns. Investing in these schemes marginally increases the current financial liabilities of an investor. In case of emergencies, these schemes are obviously non-utilizable assets. Such situations require immediate finances.