LIC Vs Mutual fund which is better here is the answer

Most of the people in India are confused about whether to go for LIC or mutual fund SIP. The answer to this question is simple; first, you need to understand the difference between LIC and mutual funds. People think that LIC and mutual funds are alternatives to each other; however, both are completely different from each other. Let us understand this.

In India, inflation, i.e., increase in the rate of prices of goods and services, stands at 7 to 8 % which means If you bought any good or service at the price of 100 Rs today. Next year same good or service will cost you 106 or 108 Rs.

Now, we will talk about returns that will be generated on LIC policy. Usually insurance advisor sells you endowment plans of LIC. An endowment plan is nothing, but you keep paying a premium for a certain period, and at the end of the period, you will get your money back with some returns as per your policy terms. If you calculate return on the basis of the amount you get at the end of the period of the policy. It stands at 6 to 6.5%, which is, of course, lower than the rate of inflation in India. This means you are not getting any return on your investment because whatever amount you are getting at the end of the period of policy Is lower than the inflation rate. However, you will get a tax benefit every year for the premium amount you are paying toward your policy.

The advantage of buying an LIC policy is that you will get risk risk-free return on your investment. It is like keeping your money in a bank account for a certain period, like FD, and with that, you will get insurance coverage also. In case of the death of the policyholder or any permanent disability, you will get a sum insured equal to the policy cover mentioned in your policy. To conclude, LIC is not for investment purposes. It can be bought for insurance coverage and tax benefits.

Now, we will talk about mutual funds. Equity mutual funds invest your money into stock market And Debt mutual fund invest your money into corporate and government bonds. The most popular are equity mutual funds. These funds usually generate returns of 12 to 15 % CAGR basis. The rate of return depends upon what kind of fund you will be buying; like in equity mutual funds there are multiple categories, we will not dig deeper into that. If you fall in love with higher returns in equity mutual fund higher will be the risk. Let us understand risk; in India, Nifty is an index that indicates market mood. This nifty will eventually go up as India is a growing country. However, there may be short-term uncertainty about returns. Nifty can go down in the short term, and then it will recover slowly. So there will be always up and down in nifty price. This means the market goes up and down due to many reasons, such as geopolitical, political, and natural calamities, Rupee dollar price fluctuations, Growth of countries, world GDP, commodity prices, inflation, and many more. To understand this in simple words, in the long run, mutual funds can generate 12-15 % returns, but in the short term, say if you invest for 3-4 years, there is no certain guarantee of returns. To get a return stated above you need to hold your mutual funds for long term. As per data collected from AMFI, you need to at least invest for 10 Years.

To conclude, Mutual fund investments come with an inherent risk of price fluctuations in the market, but you will get higher returns as compared to LIC policy. Also, you will get a higher return than inflation. Even if there is no such guarantee of return, we are betting on India’s growth story. The only point lack here is you will not get life insurance coverage like an LIC policy. I hope I have explained all the points related to LIC or mutual fund confusion among the investors.