August 10, 2023

LIC vs Mutual Funds

LIC vs Mutual Funds

The key difference between investing in Life Insurance Corporation (LIC) and mutual funds is that LIC is a life insurance company that offers insurance policies, whereas mutual funds are investment vehicles that pool money from various investors to invest in a diversified portfolio of stocks, bonds, or other securities.

This article covers: 

What is the Full Form of LIC?

LIC stands for Life Insurance Corporation of India. LIC was established in 1956 and is owned by the Indian government. LIC is primarily known for its life insurance policies, which provide financial protection to the family of the insured in case of an unfortunate event. It also offers a variety of other insurance products, including health insurance, pension plans, and investment plans.

LIC has a strong presence in the Indian market, with a vast network of agents and branches spread across the country. It is known for its reliable and trustworthy services, and has won several awards for its contributions to the insurance sector.

What is Mutual Fund in Simple Word?

Mutual fund is a type of investment vehicle that pools money from many investors and uses that money to purchase a diversified portfolio of stocks, bonds, or other securities. The portfolio is managed by a professional investment company or fund manager, who buys and sells securities on behalf of the fund’s investors. Investors buy units of the mutual fund, which represents a portion of the holdings in the fund. The returns earned by the fund are then distributed among the investors in proportion to their investment in the fund.

Difference Between LIC And Mutual Fund

Let’s compare LIC and mutual funds based on the following criteria to see how they stack up against one another:

Sure, here is a more comprehensive comparison between LIC and Mutual Funds in a table format:

CriteriaLIC (Life Insurance Corporation)Mutual Funds
PurposeProvides insurance to protect and provide financial security to policyholders.Provides investment opportunities to generate returns based on market performance.
Type of InvestmentInsurance-based investment products.Market-linked investment products.
Products OfferedInsurance policies such as term, endowment, ULIPs, whole life, and money back plans.Equity, debt, hybrid, and other mutual fund schemes.
Investment ObjectiveLong-term financial protection and savings for policyholders and their families.Wealth creation and capital appreciation for investors.
ReturnsFixed or guaranteed returns on insurance products.Not guaranteed, but market-linked returns that depend on the performance of the underlying assets.
RisksLower risk due to guaranteed returns, but may not provide higher returns in line with market growth.Higher risk due to market-linked returns, but may offer higher returns if the market performs well.
Lock-in PeriodMinimum lock-in period of 5 years for most policies.No mandatory lock-in period, but may vary depending on the scheme.
LiquidityLimited liquidity due to lock-in periods and surrender charges.Higher liquidity as investments can be redeemed at any time, subject to exit loads and market conditions.
TaxationTax benefits available under Section 80C and Section 10(10D) of the Income Tax Act.Taxation depends on the type of mutual fund and the holding period, with indexation benefits available for long-term capital gains.
RegulationRegulated by the Insurance Regulatory and Development Authority (IRDAI).Regulated by the Securities and Exchange Board of India (SEBI).

Please keep in mind that this is just a broad comparison, and that particular products and plans may offer different advantages and disadvantages. Before committing money to any financial product, it’s smart to read the fine print.

How to Find the Best LIC Plan

The following techniques can be used to identify the ideal LIC plan for different types of investors:

  • For long-term wealth creation: If you are looking for a plan to build wealth over the long term, consider investing in LIC’s Jeevan Umang policy. This is a traditional, non-linked, with-profits plan that offers a regular income stream along with life cover. The plan offers a guaranteed survival benefit of 8% of the sum assured every year, payable from the end of the premium payment term until maturity. On maturity, you will receive the sum assured along with bonuses. This plan is best suited for individuals who are risk-averse and want to invest for a long period of time.
  • For regular income: If you are looking for a plan that offers regular income, consider investing in LIC’s Jeevan Shanti policy. This is a single premium, non-linked, non-participating plan that offers a guaranteed income stream for life or a fixed period of time. The plan offers multiple annuity options to choose from, depending on your requirements. The rate of annuity depends on factors such as age, gender, and annuity payment mode. This plan is best suited for individuals who want a regular income stream post-retirement.
  • For tax savings: If you are looking for a plan that offers tax savings, consider investing in LIC’s New Endowment Plan. This is a participating, non-linked, traditional plan that offers life cover and savings benefits. The premiums paid towards the plan are eligible for tax deductions under Section 80C of the Income Tax Act, 1961. On maturity, the plan offers a lump sum payment along with bonuses. This plan is best suited for individuals who want to save tax and build a corpus over the long term.
  • For child’s education/marriage: If you are looking for a plan to fund your child’s education or marriage, consider investing in LIC’s Jeevan Tarun policy. This is a participating, non-linked, with-profits plan that offers life cover and savings benefits. The plan allows you to choose from four benefit options, depending on the age of the child. The policy also offers survival benefits at regular intervals and bonuses on maturity. This plan is best suited for parents who want to secure their child’s future and build a corpus over a long period of time.

How to Choose the Best Mutual Fund

In order to choose and invest the best mutual funds, you will need a Demat account which you will be easily able to access through Alice Blue online. After you have opened up your Demat account, you can follow this personalized guide to choose the best mutual fund based on different cases and some relevant examples:

1. For a first-time investor with a low risk appetite

For investors who are new to the market and have a low risk appetite, it’s best to start with a balanced fund or a debt fund. You can quickly get the best mutual fund by visiting Alice Blue mutual funds. These funds invest in both equity and debt, which ensures a balance between risk and returns. Some examples of such funds are HDFC Balanced Advantage Fund and Aditya Birla Sun Life Regular Savings Fund.

2. For an investor with a high risk appetite

For investors who are willing to take on higher risks for potentially higher returns, equity funds are the way to go. However, it’s important to choose funds that have a good track record of performance. Some examples of such funds are SBI Small Cap Fund and Mirae Asset Emerging Bluechip Fund.

3. For a short-term investment

For investors who are looking for a short-term investment horizon (less than 3 years), debt funds are a good option. These funds invest in fixed income securities such as bonds, which provide stable returns with low risk. Some examples of such funds are Kotak Bond Short Term Plan and Franklin India Short Term Income Plan.

4. For a long-term investment

For investors with a long-term investment horizon (more than five years), equity funds are a good option as they tend to provide higher returns over the long run. Visit the Alice Blue mutual funds to get your hands on the best equity mutual funds. Some examples of such funds are Axis Bluechip Fund and ICICI Prudential Bluechip Fund.

5. For tax saving

Investors who want to save on taxes can consider investing in tax-saving funds, also known as Equity Linked Savings Schemes (ELSS). These funds have a lock-in period of 3 years and offer tax benefits under Section 80C of the Income Tax Act. Some examples of such funds are Aditya Birla Sun Life Tax Relief 96 and DSP Tax Saver Fund.

Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.

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LIC vs Mutual Funds- Quick Summary

  • The main difference between LIC and mutual funds is that LIC is a life insurance company that offers insurance policies, while mutual funds are investment vehicles that pool money from various investors to invest in a diversified portfolio of stocks, bonds, or other securities.
  • LIC stands for Life Insurance Corporation of India, and it offers various insurance products, including life insurance, health insurance, pension plans, and investment plans.
  • Mutual funds are managed by professional investment companies or fund managers, who buy and sell securities on behalf of the fund’s investors.
  • LIC provides life insurance coverage, while mutual funds aim to generate returns for investors and in terms of liquidity mutual funds offer greater liquidity than LIC policies. 
  • To choose the best LIC plan, consider your investment goals and needs, such as long-term wealth creation, regular income, tax savings, or funding your child’s education/marriage.
  • To choose the best mutual fund, consider your risk appetite, investment horizon, and tax-saving needs. 

LIC vs Mutual Funds- FAQs

1. What is better LIC or mutual funds?

LIC provides life insurance and investment opportunities with relatively lower risk and lower returns. Mutual funds are a type of investment that allows you to invest in a diversified portfolio of stocks, bonds, and other securities with higher returns but with a relatively higher risk.

2. Is LIC policy a mutual fund?

No, LIC policy is not a mutual fund. LIC provides a range of insurance and investment products, including traditional endowment plans, unit-linked insurance plans (ULIPs), and pension plans, among others.

3. Why is LIC not a good option?

LIC policies may offer relatively lower returns as compared to other investment options. Additionally, some of the LIC policies may have long lock-in periods, and surrendering the policy before the completion of the lock-in period may result in significant losses.

4. Is LIC a good investment option?

LIC can be a good investment option for individuals looking for relatively lower risk investment opportunities. LIC provides life insurance and investment options with a guaranteed return on some of its policies.

5. What is the return rate of LIC?

The return rate of LIC policies depends on various factors such as the type of policy, premium amount, and the tenure of the policy. Some LIC policies may offer a guaranteed return, while others may offer market-linked returns. It is advisable to check the policy documents and understand the details before investing in LIC.

6. Is LIC 100% owned by the government?

Yes, LIC is a public sector insurance company, and it is 100% owned by the Government of India.

Take your understanding of mutual funds to the next level! Explore our curated collection of engaging blogs that empower your investment decisions. Click now to embark on this enriching journey!

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