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When it comes to securing your future financially, an investment can go a long way. However, investments can be of different types. You can invest in stocks, bonds, mutual funds, or buy a life insurance product. Each of these products and several others can come with some pros and cons. Hence, the right decision ultimately depends on your life goals, income, risk appetite, family responsibilities, etc. This article talks about two of the most common and preferred investment tools – life insurance plans and mutual fund investments.
Life Insurance plans
These plans offer protection for life and support your loved ones in your absence with a death benefit. There are different types of life insurance plans, such as term insurance plans, whole life insurance plans, endowment plans, unit-linked investment plans, etc. that offer different benefits. Life insurance plans can provide multiple advantages, such as protection against life, health cover, and investment. You can check Kotak Life insurance plans and pick one as per your needs.
A mutual fund is a pure investment tool. A mutual fund takes money from different investors and uses it to purchase securities like stocks and bonds.
In order to understand the ideal product for you, here is a comparison of the two:
|Point of difference||Life insurance||Mutual funds|
|Definition||A life insurance plan is a protection plan that secures your family in the unfortunate event of your death.||A mutual fund is an investment product that allows you to invest your money in return for rewards and returns.|
|Risk component||There is little to no risk involved with traditional life insurance plans. As long as you pay all premiums on time and adhere to the policy document, your nominee will receive a sum assured at the time of claim settlement.||Mutual funds, just like any other investment product, carry some amount of market risk.|
|Purpose of investment||The primary reason to buy a life insurance plan is to safeguard the future of your dependents when you are not around to do so yourself.||The main goal of investing in a mutual fund is to grow your wealth.|
|Product types||Life insurance products can be categorized into - Whole life insurance plans - Term insurance plans - Life annuity insurance plans (immediate and deferred) - Unit-linked insurance plans - Endowment plans - Group insurance plans||Mutual fund types include - Money market funds - Index funds - Balanced funds - Equity funds - Fund of funds - Specialty funds|
|Returns||The returns from a life insurance plan include the death benefit, maturity benefit, and bonuses accrued over time. These are generally fixed sums that are decided at the time of purchase. In the case of unit-linked plans, endowment plans, etc., there is also a return on your investment. However, these are comparatively low.||The returns from a mutual fund are comparatively higher than life insurance products. Since the risk of investing in the market is high, so are the rewards.|
How to choose?
Both products have their own benefits to offer. While mutual funds let you build wealth, life insurance protects your family. A right combination of the two can be the ideal choice. The mutual fund will let you cover your short term and long-term expenses and goals, and life insurance will guarantee protection against life.
To sum it up
While both these plans are important, sometimes you may have to prioritize as per your immediate goals. Understanding the differences between life insurance and mutual funds can help you pick the right option at the right stage of your life.
- A Consumer Education Initiative series by Kotak Life
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