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Life Insurance vs Mutual Funds

Life Insurance secures your family’s future financial stability in your absence. Mutual Funds is an investment tool that enhances your wealth through market-linked investments.

  • Nov 23, 2021

Modern living is based on the desire to meticulously plan out all important decisions of your lives - everything ranging from educational institutions to your dream job and the sort of life you picture with your partner and children. You can say that financial planning is at the heart of this roadmap for your future. People are increasingly putting their hard-earned money into the many financial assets available nowadays, and you must also follow suit.

The debate over mutual funds vs life insurance has gotten a lot of attention recently. This debate is reaching the masses since everyone wants to hand-pick the greatest possible instrument to multiply their fortune, making it one of the most difficult decisions for most people. The confusion is more because life insurance and mutual funds have earned people’s confidence and enormous popularity over time.

Whether it’s about life insurance needs or the fundamental nature of mutual funds, each instrument is unique in its manner, so it’s always better to choose an option that best matches your investment model. Moreover, the reasons why one opts for any financial plan may vary from person to person depending on their financial goals. So it is advisable to first set your goals and objectives and then choose a plan that best aligns with them.

Life Insurance

An insurance policy assures that your nominees are thoroughly secured in the event of unexpected situations in your life. Once you buy a life insurance policy, the insurance companies are bound to pay your listed nominee the full sum assured if you pass away during the tenure.

When deciding which one is better, life insurance or mutual funds, it’s always best to consider the benefits and drawbacks of each financial instrument separately and understand which plan helps you fulfil your ultimate goals. The advantage of an insurance policy that makes it an effective financial tool is tax exemption on premium payments and growing dividends. The sum assured the beneficiaries receive from the insurance companies is also tax-free. Thus, in the case of mutual funds vs life insurance, an insurance plan comes with much lower risks. You can’t let the life insurance needs overpower the disadvantages if you want to make an informed judgement. For example, life insurance plans offer lower investment returns than mutual funds and are linked with increased costs due to continuous premium payments, rider additions, and other factors.

Difference between life insurance and mutual fund investment

Mutual Funds

A mutual fund is a type of venture that helps you grow your money by making market-linked investment plans. They are seen as a worthwhile investment for achieving long-term financial objectives, such as schooling, home-ownership, or a business start-up.

When it comes to the benefits, mutual funds provide much higher investment income. Moreover, unlike having to rely on a single medium for capital accumulation, their returns frequently come in stock, cash, or capital asset value appreciation. However, one drawback is that there are multiple fees and taxes hidden on the surface that reduce the profits of your mutual funds, such as the previously enacted long-term capital gains tax on equity and the implementation of service tax, that have made mutual funds extra costly. These elements combine to make mutual funds more vulnerable to risk in contrast to the insurance policy.

The Difference

Point of Difference

Life Insurance

Mutual Funds


A protection scheme that secures the future financial stability of your family in your absence

An investment tool that enhances your wealth through market-linked investments


A requisite part of your financial portfolio that safeguards the financial future of your dependents, your parents or children

A rewarding investment that helps you meet your long-term financial goals like education, buying a property, starting a business, etc.


Involves low risk as compared to mutual funds, and it offers a guaranteed death benefit

Involves high risk as it does not guarantee returns and comes with no death benefit


Low returns because of zero guarantee of returns

High returns due to diversification of funds

Having read this article, you can now analyse all the criteria that will help you decide which one is better life insurance or mutual funds. Whatever financial goals you may have in mind, the debate over mutual funds vs life insurance is here to stay. Therefore, it falls upon you to conduct thorough research, determine your needs and requirement, and make the right decision.

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Ref. No. KLI/22-23/E-BB/2435


- A Consumer Education Initiative series by Kotak Life

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