Don’t invest in ULIP
ULIPs were sold as an alternative to mutual funds. That is the primary method of mis-selling. When you sell ULIPs as mutual funds, then people tend to believe that the returns on a ULIP can happen as fast as in mutual funds. For example in good markets, an equity fund can give you reasonably good returns at the end of 3 years. But for a ULIP to be really profitable it takes a minimum of 7-8 years. That too is the case only when markets have been in positive mode. If markets are in negative mode then it can take much longer than that. For example, if someone had started a ULIP at the bottom of the market correction in March 2009, it would have taken them at least 5 years to just break even. That is the difference.
Firstly, ULIPs have a lock-in period of 5 years as against the lock-in of just 3 years in the past. You cannot withdraw your ULIP amount before the completion of 5 years. Mutual funds, on the other hand, are redeemable from the date of unit allotment itself. Even ELSS schemes have a lock-in period of only 3 years. The second aspect is of perception. During the period between 2003 and 2006, many ULIPs gave attractive returns to investors. This helped many investors to redeem their units at a profit at the end of 3 years. During that period many ULIPs were mis-sold to investors as attractive medium term investment products.
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