My question is regarding the comparison of ULIP NAV and mutual fund NAV. I understand that there are a lot of deductions associated with ULIPs, but if we keep those aside, I want to know the fund manager’s approach in managing ULIP NAV and mutual fund NAV. Are there chances of the ULIP NAV growing faster?
The charges levied by ULIPs are very important. When you invest Rs 10,000 in a ULIP every quarter, how much of it goes to work by way of investment and how much doesn’t is quite crucial. Assuming that only Rs 6,000 of your invested money goes to work, and you invest Rs 6,000 in a mutual fund, which one will do better? There is no real way of coming to a conclusion about this. ULIPs are not sold on performance, while funds are. A mutual fund attracts money when it does well, which is their incentive for performing. On the other hand, ULIPs are sold on different criteria like hard commissions to agents; they are sold as a very long-term product on the basis of brand and distribution. But the initial charges of ULIPs and the lack of liquidity, the inability to move out if the product isn't doing well, are inherent disadvantages. Compared to that, mutual funds have very low cost, they're transparent and liquid. Hence, ULIPs and mutual funds are strictly incomparable.