Should I invest in LIC, SIP, or mutual funds?

Should I invest in LIC, SIP, or mutual funds?

When it comes to investment avenues, investors are spoilt for choice. There are various avenues which cater to the different investment strategies which investors have. Among the leading avenues, investors are often confused about investing in LIC, SIPs and mutual funds. Do you also find your customers confused about choosing the best avenue among these three?


LIC, SIP and mutual funds – the difference


First of all, LIC is a completely different avenue from SIP and mutual fund investments. LIC is, basically, investing in life insurance policies. When it comes to life insurance, there can be no parallel investment avenue which gives the benefits provided by life insurance policies. The importance of life insurance plans can be understood in the following points –


  • Term insurance plans help in creating a substantial financial corpus for the family in case of the untimely death of the breadwinner


  • Child insurance plans provide the security that even if the parent is not around, the planned financial corpus would be built for the child’s future


  • Pension plans secure retirement by promising annuity pay-outs throughout an individual’s life


So, insurance plans give individuals the financial security to face unforeseen contingencies. Which other investment avenue does that?


Moreover, if your clients are looking for returns along with insurance cover, there are two types of plans which fulfill such requirements. These are –

  • Endowment plans which create a guaranteed corpus payable on maturity or death. Thus, these plans are suitable for those looking for fixed income avenues


  • Unit-linked plans which combine the benefit of insurance coverage and market linked returns. These plans, therefore, are meant for investors who want to create wealth.


Insurance cannot be substituted with any other mode of investment given its importance. While making a financial plan, your clients should, first, invest in life insurance for availing financial security and then explore other avenues for generating returns and building wealth.


SIPs and mutual funds – which is better?


SIPs (Systematic Investment Plans) are nothing but a way of investing in a mutual fund scheme. If your clients choose to invest in a mutual fund through regular monthly investments, they can choose to invest through SIPs. SIPs invest in a chosen mutual fund a fixed amount every month. So, there is, basically, no difference between a SIP and a mutual fund. While a mutual fund is a fund for investment, SIP is a way of investment. One can invest in a mutual fund through monthly investments through SIPs or in one lump sum. SIP investments are, however, better because –


  • They are affordable starting from as low as INR 500 per month
  • They allow individuals to save small amounts in a disciplined manner
  • They give the benefit of rupee-cost averaging and investors are freed from the task of timing the stock market
  • Compound returns, calculated on each month’s investment, create a substantial corpus over a long term period.


However, before investing in mutual funds, one should understand the types of funds available. Though there are a variety of mutual funds, primary are equity oriented funds and debt oriented funds. Equity-oriented mutual funds are those which invest at least 65% of their portfolio in equity and equity-linked instruments. They are, therefore, exposed to market volatility, carry high risk and yield attractive returns. Debt-oriented funds, on the other hand, invest in fixed income instruments. As such, they carry low risks, are not exposed to market volatility and yield low returns.


LIC, SIP and mutual funds – the bottom line


When your clients ask you to advise them on which one is better, one thing is certain. Advise them to, first, aim for financial security by investing in a life insurance plan and then they can plan their investments. Once they have financial security, they can plan their investments in different mutual fund schemes based on their risk profile. Unit-linked insurance plans can also be considered as they provide insurance with a mutual fund like investment avenue. If, however, they want to invest in mutual funds, SIPs are the best way to go about it. They can choose affordable amounts to invest every month and steadily create good corpus. So, financial security first and then the investment should be the motto.


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