LIC vs mutual fund: which investment earns more?

LIC (Life Insurance Corporation of India) and SIP (Systematic Investment Plan) offer investors a way to secure their futures. However, for most people, whether to invest in a mutual fund or LIC comes down to a simple question – which investment will earn more money?

It is hard to compare the returns of the two investment instruments as they are different products. LIC and mutual funds have unique features, so it ultimately falls on investors to decide which option best fits their needs. On that note, here is a closer look at LIC vs mutual fund: which is better?

LIC vs mutual fund

LIC is a government-owned insurance and investment company. It offers several insurance products, including insurance, endowment, whole-life, money-back, and term assurance plans.

LIC provides financial protection to the policyholder’s family (nominees) in the unforeseen event of death. LIC also offers maturity benefits in the form of lump sum payouts or annuity payments.

Meanwhile, a mutual fund is an investment vehicle that pools money from many investors and invests it in various assets, such as bonds, stocks, money market instruments, and other securities. Mutual funds are managed by professional fund managers, who use their expertise and research to make investment decisions on behalf of the investors. Mutual funds offer investors several benefits, including professional management, diversification, and the ability to generate wealth over time.

LIC vs mutual fund—Risk

LIC is a low-risk investment because it offers guaranteed returns. LIC is a government entity, so there is no risk of default. However, the returns on LIC policies are relatively low compared to investment options such as equity mutual funds.

Equity mutual funds invest in market-linked instruments with higher scope for returns. The risk may be more as markets are volatile and affected by several factors, such as government policies and geopolitical tensions.

Mutual funds vs LIC policy—Returns

The expected return from a LIC policy is usually enough to counter inflation. As for mutual funds, the expected return depends on the performance of the underlying securities it invests in. Generally, equity mutual funds deliver enough long-term returns to help you build wealth and beat inflation.

Is LIC better than mutual funds in terms of tax benefits?

Per section 80C of the Income Tax Act, you can avail of a deduction on the LIC premium you pay towards your life insurance plan. The maximum limit is Rs. 1,50,000 annually, which can help reduce your liability on taxable income hertube.

Not all mutual funds are eligible for tax deductions. Only the ELSS fund (Equity Linked Savings Scheme) allows investors to claim income tax deductions on investments up to Rs 1.5 lakh under Section 80C of the Income Tax Act. Note that all ELSS funds have a lock-in period of three years.

SIP vs LIC: which is better?

LIC is a government-owned insurance and investment company. SIP is an investment route offered by mutual fund companies where you can regularly invest a fixed amount in a preferred mutual fund scheme. You can decide the amount and the frequency of your investments. The money is automatically deducted from your savings account and invested in a mutual fund scheme.

The main difference between LIC and mutual fund SIP is that LIC is an insurance product first, while SIP is related to investments. With SIP, the primary purpose is to grow your money and offer decent returns over time through investing.

Another crucial point to consider when comparing LIC vs SIP is how your money grows over time. With LIC, your money grows at a predetermined rate set by the policy. It means you will know how much money your beneficiaries will receive upon your maturity/sudden demise. SIPs in mutual funds do not have a guaranteed rate of return. They are subject to market fluctuations and designed to help you grow your money over time with compounding and rupee cost averaging.

LIC or mutual fund: where should you invest?

While life insurance and mutual funds are essential, they serve different purposes. Life insurance is designed to provide financial security during the insured’s death. On the other hand, mutual funds are a diversified investment vehicle that can create long-term wealth. Purchasing LIC term life insurance as a safety net and investing in mutual funds for wealth creation is a sound financial strategy.

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