LIC Scheme vs Mutual Fund: Which is a better option?

There are several investment options available if you want to secure their future. One of them is mutual funds. This option pools money from investors to put in a variety of securities like stocks and bonds. These investments are based on a systematic investment plan (SIP) and can prove beneficial in the long run. Another beneficial choice can be in a scheme of the Life Insurance Corporation of India (LIC). Take a look at how the two investment options compare and which can be more beneficial for you.

LIC scheme: Key features

LIC is a government-backed entity that fulfils a person’s insurance needs. LIC’s life insurance scheme offers risk coverage and financial security. In case of the policyholder’s demise during the term, the nominee/heirs will get death benefit.

Mutual fund: Key features

Mutual funds (MFs) are another popular investment choice. They are divided into two broad categories – debt and equity mutual funds. Debt mutual funds invest in government securities, money market instruments and bonds. On the other hand, equity mutual funds put their money primarily in equity-related instruments.  One can invest in mutual funds with an SIP of as low as Rs 500.

LIC vs mutual funds: Major differences

Risk: LIC policies are backed by the central government and are less risky. They offer guaranteed death benefits as well. Mutual funds are dependent on the market and are far more volatile in terms of returns.

Returns: Mutual funds offer higher returns than LIC in the long run. These returns can help in addressing any short-term fluctuations in the value of the fund.

Purpose: LIC schemes offer investors a chance to secure the financial future of their dependents. As for MFs, policy is geared towards creation of wealth in the long run for fulfilment of financial goals.

Tax benefits: Under Section 80C of the Income Tax Act, 1961, premium payments of up to Rs 1.5 lakh on life insurance are exempted from taxation. For mutual funds, only equity-linked savings schemes (ELSS) qualify for deduction u/s 80C.

LIC vs mutual funds: Which is better?

The more viable choice between LIC policy and MF will depend on the investment needs of the individual. If an investor is more focused on creating wealth in the long run, mutual funds can be better. If the motive of the investment is to secure the future of one’s family, life insurance can be a more beneficial choice. Any investor needs to keep in mind that their portfolio is diversified and they can create a corpus of wealth for the future.