"The term plan+mutual funds combination is financially the most efficient."
The cost structure of Ulips is also complicated. For the lay buyer it can be hard to know what the charges are and what their implications on his final returns will be, especially at the time of purchase. (Later, of course, he will get statements from time to time, but by then it will be too late).
Therefore, in the first place, the mutual fund-term plan combination scores by having a lower and more transparent cost structure.
Mutual Fund V/s Ulips
Another problem with Ulips is that an insurance company offers only a limited number of fund options.
If the funds offered by the insurance company underperform, the investor does not have the option to exit his current fund and invest in a high-return fund from another company (until the lock-in period is over). On the other hand, if he invests in mutual funds, he can easily exit his current underperforming fund (most mutual funds do not have an exit load after one year), and choose from any one of the hundreds of funds available in the market.
Mutual Fund V/s Endowment and money back life insurance Plans
Traditional products such as endowment plans and moneyback plans too have drawbacks.
The biggest is that they offer simple interest, whereas if you invest in a mutual fund or even in a PPF, your investments grow through compounding.
As we well know, the effect of compounding is powerful, especially over the long term.
The second disadvantage of traditional products is that they have a high allocation to debt products. This, too, affects their returns: over the long term, as we know, returns from equities trounce those from debt.
Another disadvantage of insurance-cum-investment products belonging to insurance companies is that despite paying a hefty sum of money as premium, the family could still be under-insured.
Since term plans are inexpensive, one can buy adequate amount of cover through them.
Source: ValueResearch
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