LIC or SIP – which is better is a obvious question for a risk averse investor who want to invest his hard earned money. One is bound to be tempted to look at the benefits and risk of both LIC and SIP.
However, LIC and SIP, both are altogether different products just like mango and apple. In this post we will discuss both products benefits in detail.
Before jumping into the difference between LIC and SIP, it is necessary to understand the difference between insurance and investment.
The post is last updated on 12 jan 2023
Table of Contents
What is Insurance?
Life Insurance is basically a legal contract between the insurer( insurance company) and insured, wherein you promise to pay a certain amount of money( premium) and the company promises to pay a sum insured in case of any eventuality with insured.
At the same time companies also pay some maturity benefit after the promised period. The maturity benefit amount varies from policy to policy and plan to plan.
What are Mutual Funds & How it works?
Mutual Fund is an investment scheme where people pool in money (just like other investments) and your money is invested (on your behalf) in stocks , bonds or other securities.
Here, AMC (Asset Management Company) pools in your money to invest inmutual fund schemes.[Tweet “Click to tweet”].
Consequently MF scheme Manager (act as a fiduciary) invest your money in stocks, bonds or money market instrument (as per scheme objective*).
*There are different kind of schemes in mutual funds. Broadly classified into equity, debt and balanced funds.*
To read more about mutual funds: Beginners guide to mutual funds
Two ways to invest in Mutual funds
There are two ways through which you can invest in mutual fund.
- One Time/ Lump sum Investment
- SIP
You can choose lump sum investment or SIP investment as per your cash flow.
How to invest in SIP?
What is SIP investment?
SIP or systematic investment plan (SIP Full Form) is a way to invest in a mutual fund scheme, wherein you pay a fixed amount each month/quarter/year. You can choose the investment frequency as per your own choice.
Usually people choose monthly SIP mode. Because it is convenient, investors choose monthly SIP investments.
Here your money is invested in stocks or debt securities and some return is generated.
Read more about mutual funds
LIC Or SIP – Which is better?
Both products are exceptionally good and best in their peer category. But here, the question of the hour–what is your need?
The reason of buying – Insurance
If you want to buy for insurance purposes than LIC is best. You can invest in a variety of insurance policies.
The reason of buying – Investment
If your reason for buying is investment, then SIP is better. Because SIP yield is better in the long term.
Mixing Insurance with Investment?
It is never a good idea to combine investment and insurance in a bundled product.
In India, more than 90% of people buy endowment or ULIP Plans to fulfil their needs, which combined insurance and investment.
These products do not provide good returns and insurance cover is also quiet low. Read more about it.
If your need is insurance then definitely one should buy a term insurance.
If your need is investment then one can choose from a variety of options such post office saving scheme, bonds, Mutual funds etc.
There are Mutual funds of SIP in mutual funds because one can choose his investment amount, duration of investment and frequency of investment also.
One can get inflation linked returns from SIP.
Taxation of SIP and LIC
In case of LIC Investments you get tax benefit of 1.5 lakh under section 80c and the maturity is also tax free. While in case of SIP maturity or redemption is taxable in nature.
SIP Profits over 1 lac are taxed@ 10% after completion of 1 year. If one withdraw before completion of 1 year then gains are taxed @ 15%.
Read More Pay LIC Premium Online – Easy ways to pay
SIP Taxation-How SIPs Are Taxed
Top 5 reasons why you should choose Mutual Funds over Insurance
Mutual Fund SIP-Systematic Investment Plan II Step by step guide on How to Start a mutual fund SIP
LIC Vs SIP – Real Life Example
Let’s take an example of Ms. Mamta Khanna. Let’s say she starts a SIP in equity mutual fund for 11 years and starts a LIC policy at the same time for same amount.
The below SIP investment value is calculated using SIP Calculator
| Monthly SIP amount in MF ( Axis bluechip Fund) | Total Investment | Investment Value after 12 years | Annual Return |
| 10000 | 14,40,000 | *32,42,713 | 12.72% |
| Monthly LIC SIP ( Table no. 914) | Total Investment | Investment Value after 12 years | Annual Return |
| 10000 | 14,40,000 | *19,96,800 | 5.3% |
*please note that the return and investment value may differ than above. Since the value is changing with the scheme performance and LIC Bonus rate declaration.
Now, let’s evaluate what is the benefit and disadvantages of both the investments.
| Features | SIP Benefits | LIC benefits |
| Tax benefit | No tax benefit ( but one can invest in ELSS MF to get tax benefit) | Tax benefit |
| Life Cover | No Life Cover In case of death the fund value will be given to the family. | You get a Life cover of 13,50,000 for the given amount for 12 years. So in case of unfortunate death of the person, the family will get Sum Assured ( 13.50 Lac) and Bonus till date. |
| Investment | High growth rate is seen | Low return on Investment |
| Safety | In Short term, one may get lower or negative returns also. Returns are market linked | Return and capital safety is guaranteed. |
Are SIP safe?
SIP full form is Systematic Investment Plan. Here, the investor is choosing to invest a fixed ( pre- decided) amount after each period ( monthly, quarterly, yearly etc.).
On investment units are alloted on the basis of price.
SIP is a safe method to invest in mutual funds. In the case of a lump sum investment, there is a substantial risk of losing money if the market declines. But with SIP investment, the money is invested across the market ups and downs and hence is quiet safer than lump sum investment.
However, SIP returns might be low in short span of times( in declining market) but the returns are substantial in long run ( 5 year or more).
Don’t worry, there are ways to invest lumpsum amount too in mutual fund.
Learn how to invest lump sum amount in mutual funds.
What is average interest rate in SIP?
Although mutual funds are dynamic products, but on an average interest rate in SIP may fall between 6%-15% if holding period is long. This return is not guaranteed and this may change from fund to fund, market condition and other factors.
Which SIP is best for 10 years?
For long duration such as 10 year or more, One can adequate risk in their Mutual fund investments. Thus mix of equity mutual fund SIP is best for 10 years.
One can go for Large Cap Equity Mutual fund, Mid and Small Cap mutual fund for SIP purposes. Even people who are willing to take some more risk can also go for thematic fund, sectoral fund too.
Best SIP Plan for 10 year investments
- Mirae Asset large Cap
- Canara Robeco Bluechip Equity Fund
- Kotak Emerging Equity Fund
- Kotak Bluechip Fund
- Nippon India Value Fund
- SBI Contra Fund
Want to Cancel your SIP – Top 3 Easy Ways to Cancel SIP in a Click
Conclusion
LIC SIP or Mutual fund SIP are both are very lucrative option to invest in. But one should evaluate the best option on the basis of his/her own needs. The person looking for safe returns than one can invest in safe schemes such as PPF, NSC, KVP, SSY or SCSS or some other schemes such as bonds etc.
If the requirement is insurance than one can go for term insurance plans.
However if you are looking only for investment than nothing better than SIP. I hope that I have answered the query which is better LIC or mutual fund.
Read more about how to become crorepati with 5000 SIP
How 10000 SIP can make you rich?
If you have still more queries do let us know about it by leaving a comment.
