Investing is a powerful method to put your money to work for you and develop wealth. But, most of us get influenced by our fellow associates when it comes to investing and end up making a bad investment due to a lack of wisdom and knowledge. Understanding your wants and needs is important before investing in any instrument. Like, many Indians prefer to buy life insurance for investment purposes for a simple reason; safety. But the fact is that there is much more to explore other than that.
Indian people come from a mindset that has long held that investing in something safer rather than riskier assets like equities, debts, etc., will be a good idea. Each of these products has certain advantages and disadvantages. As a result, the best selection is ultimately determined by your life objectives, income, risk tolerance, family duties, etc. This article discusses two of the most popular and favoured investing vehicles: life insurance and mutual fund investments.
These policies provide life insurance and a death benefit to help your loved ones in your absence. Several life insurance plans provide diverse advantages, such as term, whole life insurance plans, endowment plans, unit-linked investment plans, and so on.
People consider life insurance an investment since specific plans provide rewards if the policyholder survives the term, and if not, claim money is given to dependants.
A mutual fund is a sort of plan that helps you increase your money using market-linked investing strategies. They are seen as a wise investment for long-term financial goals such as education, property purchase, or company start-up. Mutual funds carry the risk of a volatile market. Even though it leads to good returns, the risk is there.
Also, many hidden fees and taxes reduce the profits of your returns, and it can be a major drawback for someone who wants to invest in mutual funds.
Before you choose to invest, whether in life insurance or mutual funds, keep the following things in mind:
Returns: A life insurance plan used for investing is not only expensive, but it also does not guarantee returns on investment that are comparable to those of mutual funds. You may optimise your profits without relying on a single fund for growth in addition to the fund diversification option that a mutual fund offers.
Liquidity: Any cash-value life insurance policy, which includes all permanent life insurance plans, can be regarded as a liquid asset. It is important to understand the liquidity options available to you before buying life insurance. Except ELSS, one can withdraw money from mutual funds within a year if we're talking about liquidity in mutual funds.
Risk Tolerance: Knowing how much risk you are comfortable with before investing is important because while specific investment alternatives may provide more significant returns than others, they may also expose you to more danger.
Investment Timeframe: You may estimate how long it will take you to reach your investing goals once you've established your plan and goals. Whether you are setting short-term or long-term investment objectives, you must be aware of the timing of your investment. Your financial future may be at risk if you don't know your investing time period.
Both products have different offerings. It is like comparing a mango and an apple. Life insurance safeguards your family, while mutual funds enable asset accumulation. The best option could be a good mix of the two. The mutual fund will enable you to meet your short- and long-term goals, and whole life insurance will ensure protection from untimely death.