ULIPs are financial products that combine the benefits of both insurance and investment. When investing in a ULIP, a portion of the premium goes towards providing life insurance coverage while the remaining amount is invested in equity, debt, or a combination of both, based on the risk appetite.
The returns on a ULIP are linked to the performance of the underlying investments, offering the potential for growth while also providing financial security.
“ULIP sales have gone up quite a bit over the last year. I’m guessing most ULIPs are sold by banks because of the high commissions on these products,” said Kamath.
The Zerodha chief noted that while ULIPs promise the best of both worlds, the reality is that they offer the worst of both worlds as they have high commissions, and the insurance cover you get is not enough.”You are better off separating insurance and investments by investing in direct mutual funds and buying a term insurance policy. This is much cheaper as well. By the way, many people don’t even realize they have a ULIP or some other terrible insurance product,” he said.Mutual funds have been gaining popularity among retail investors over the past few years, which is reflected in the fund flows. In the financial year 2023-24, mutual funds contributed Rs 1.84 lakh crore to the equity market capitalization, compared to Rs 69,000 crores in FY17.According to the RBI’s Flow of Financial Assets and Liabilities of Households data, investments in mutual funds accounted for 2.56% of financial assets in FY 2019-20, and this percentage increased to 6.05% in FY 2022-23.
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