LIC Vs Mutual Fund: Which is Better?

Therefore, it is quite important to understand the key differences and benefits before investing.

Key Differences Between LIC and Mutual Funds

Life insurance and mutual funds are two very different products that are often compared when a person plans to invest their money. This is because the LIC of India offers Endowment Plans that offer both insurance coverage and savings options. Additionally, there are Unit Linked Insurance Plans (ULIPs) which are market-linked insurance cum investment plans.

Mutual Funds and each type of LIC savings/investment plan has distinct features, benefits and drawbacks. Hence, following are some major differences between LIC and Mutual funds that will help you understand both much better.

Comparison Table: LIC vs Mutual Funds

Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.

Let us now see LIC and Mutual Funds as products and decide what suits you better.

What Is Life Insurance Corporation Of India (LIC)?

As one of the most trusted insurance providers, the Life Insurance Corporation of India (LIC) offers a wide range of insurance products. Life Insurance Corporation has a wide range of best-selling plans that offer the most comprehensive coverage benefits. The main purpose of an LIC policy is to offer financial support to the family of the policyholder in case of their untimely demise during the policy term.

There are different types of policies rendering different types of benefits. Some policies like term insurance are purely insurance-based while some have the features of both insurance and investments.

Types of LIC Plans

Generally, the Life Insurance Corporation of India offers the following plan types

• Term Insurance plans are pure protection plans that pay a lump sum to your nominee if you die within the policy term. The premiums are generally lower as there is no maturity benefit.

• Pension plans help you build a retirement corpus during your working years so that you can get a regular income as pension (annuity) after retirement.

• Whole Life plans provide insurance for your entire lifetime (usually up to age 100) and pay the sum assured plus bonuses to your nominee on your death.

• Endowment plans Combine protection and savings. They pay a lump sum on maturity if you survive the term or on death if you don't.

• Unit Linked Insurance Plans (ULIPs) are a combination of insurance and market-linked investment. Some part of your premium goes to life cover and the rest into equity or debt funds. Since your investments are tied to the market performance, the returns vary.

• Money-back plans pay a percentage of the sum assured at regular intervals during the policy term, with the balance and bonuses at maturity. Life cover continues throughout.

• Micro Insurance plans are low-premium, low-cover plans designed for economically weaker sections, offering basic financial protection.

• Health plans cover medical expenses such as hospitalisation, surgery or critical illness or pay a fixed benefit on diagnosis, depending on the plan.

Benefits Under LIC

Following are the benefits covered under LIC policies:

• Financial security for loved ones

• Risk coverage with additional rider options

• Building financial corpus with savings plans

• Tax saving benefits

What is Mutual Fund?

One of the most popular investment options these days, mutual funds refer to a pool of accumulated sums by various investors. Mutual Funds are a type of financial instrument that is created by a number of investments from several institutions (Asset Management Companies) and individuals to gain returns on the capital invested over a period.

Basically, in mutual funds, the accumulated sum is invested in different assets like liquid funds, debts, equities, etc. It is an excellent investment option for individual investors to get great exposure. The funds’ corpus is managed by a portfolio manager or fund manager who is an investment professional.

In short, a mutual fund is an investment tool where your money is spread across several different investments. Your investments are generally managed by a fund manager who pools money from many people and Asset Management Companies to buy a combination of financial assets like stocks, bonds and other securities. You get returns based on how your assets perform in the market.

Types of Mutual Funds

In a broader term, mutual funds are categorized into the following types of funds

• Equity funds Invest mainly in company shares, aiming for high long-term growth. They carry higher risk and returns can swing with the stock market.

• Debt mutual funds Invest in fixed-income instruments like government securities, corporate bonds and treasury bills. They are generally more stable than equity funds, with lower but steadier returns.

• Tax Saving Equity funds (ELSS) Equity funds that qualify for tax deduction under Section 80C (old tax regime) and have a mandatory lock-in of 3 years, the shortest among 80C options.

• Balanced or Hybrid funds Split your money between equity and debt in a set ratio, balancing growth potential with lower volatility.

• Hybrid mutual funds The broader category that blends asset classes such as equity, debt and sometimes gold. Allocation varies by type such as aggressive, conservative or arbitrage hybrid funds.

• Money Market funds Invest in very short-term debt instruments like commercial paper and certificates of deposit (maturity up to 1 year). They suit parking surplus cash for short periods with low risk.

• International funds Invest in stocks of companies outside India, giving you global diversification. Returns are also affected by currency movements and overseas market conditions.

Mutual funds are categorized keeping in mind their equity exposure and asset allocation.

Benefits of Mutual funds

Following are the benefits covered under Mutual funds:

• Proper fund management

• Easy to invest

• SIP options available

• Better returns

• Diverse categories for investment

• Affordable investments with easy payment options

Myths About LIC vs Mutual Fund

LIC and mutual funds are two completely different concepts and yet people confuse them to be the same and search for - “LIC vs mutual fund which is better?”. By now you must have understood the difference between the two. Similarly, there are a few other myths, let’s clarify them as well.

• LIC gives the best return on investment
  Some LIC endowment policies offer stable returns but not necessarily high returns. Mutual funds do have market risks but may offer higher returns than LIC most of the times if managed well.

• I will not lose my money in LIC
  LIC policies are quite reliable and low risk but their ULIP products are market-linked and hence, can sometimes bring you loss if they go down in value.

• Investing in Mutual Funds is like gambling
  Mutual funds are compared with gambling as there are no definite returns. However, they are safe and the returns are not guaranteed because they depend on how the market performs. They are safe and profitable when invested under the supervision of a professional who can invest in the right type of fund and think for long-term profits.

Mutual Fund or LIC: Which is Better?

Each person has his/her way of thinking and mindset while he/she is planning to invest. Some want financial securities while others want better returns. So, before questioning - “LIC or mutual fund which is better?”, it is important to understand your financial potential before investing anywhere, be it a LIC policy or mutual funds.

In-depth knowledge about the product is very important before spending your hard-earned money.

Think wisely! Invest carefully!

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