ULIPS

Unlike Mutual funds, which is a pure investment tool, ULIPs offer both life insurance and an investment plan.

A Unit linked insurance plan offers three investment options–flourishing equity options, safe debt options and balanced options, thus satisfying the needs of the risk-averse as well as the aggressive investor.

With a mutual fund, if your investment takes a hit due to falling markets, you have only two options, to surrender your fund or to stay invested and hope for the markets to rise again. However, with a ULIP plan, you can switch your funds based on their performance.

ULIP plans mostly involve a premium allocation charge, which has been capped at 1.35% by the IRDA. Also, it's important to note that the charges of a Unit Linked Insurance Plan are only for the first few years, post which the charges start to reduce and disappear altogether.

With ULIP plans you have the tax advantage under Section 80C, wherein the premiums paid can be used to avail deductions on your taxable income up to Rs 1,50,000. This is not the case with a mutual fund, wherein only a selected number of funds offer this tax benefit. The returns of a Unit Linked Insurance Plan are also tax exempt!