ULIP vs Tax Saver Mutual Funds
As per the prevailing tax laws in India, one can save tax on the investments in noted mutual funds, insurance, ULIPs upto Rs. 1 Lakh.
We can compare ULIPs as equal to the mutual funds in their operation except the extra feature the ULIPs provide, the insurance cover. However linking the insurance with the investment is debatable. Everyone's life should be covered by certain amount of Insurance, except their family can financially sustainable in absense of the family head. But at the same time Insurance should not combined with investment. Investments are something different from the insurance.
Another point to be noted here is all the ULIPs charge 20% to 80% of the capital in the initial stages of investment as administration and other charges . So we cannot expect the high returns until and unless we continue investing for longer term. For instance the ULIP companies charges 20% for the first year, around 12% in the next year, 4% afterward (Applicable for some schemes only, may vary for each scheme).
Coming to the mutual funds, the total charges must not cross 6% of the capital as per the prevailing rules . Generally, money invested with Tax Saver mutual funds and ULIP schemes will have the lock in period of 3 years during which your money cannot be taken back. Since the maintenence charges involved in the mutual funds are very less compared to ULIP schemes, they may give more returns.
Since both Tax Saver mutual funds as well as ULIP schemes invest in Stock Markets, the risk will be higher compare to the other savings schemes like Bank Deposites, PPF etc.
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