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Mutual Funds Or Endowment Policy? Which Is Better?

There are two types of insurance policies in general. There's the basic term policy, which provides a pure life insurance policy with a significantly bigger sum assured and a smaller premium. A sunk cost is a premium paid on a term insurance policy. You acquire a life insurance policy every year for the premium you pay on your term policy. The premium thus paid becomes a buried cost at the end of the year, and it is time to pay the following premium. In contrast, endowment plans require you to pay a premium that includes both a risk cover and an investment component. Unlike a term policy, the owner of an endowment policy will receive some benefit even if he lives to the end of the policy's term. On the other hand, if you outlive a term policy, you will have nothing in your possession. Only in the event of your death would a term policy pay the money assured to your family.

Mutual Funds Or Endowment Policy? Which Is Better?

The following are a few of the differences between Mutual Funds and Endowment Policy:

1. Financial Objectives

An endowment policy is an important part of an individual's retirement plan since it protects the financial security of their dependents, parents, or children. Mutual funds are an important part of achieving your long-term financial objectives, whether they be for college, a home, or establishing a business.
The latest insurance product trends on Return of Mortality Charges have broadened the product's appeal and made it more acceptable as an investment. – The acquisition of mutual funds, including lump sum, SIP, STP, and dividend reinvestment, will be subject to additional stamp duty.

Must Read: Best Endowment Plans In India

2. Returns

When an endowment policy is employed as an investment vehicle, it is not only costly but also does not provide comparable returns to mutual funds. However, the new insurance plans are more consumer-friendly, with higher returns and insurance perks to keep up with the times. You can maximize your profits without having to rely on a single mutual fund for growth, in addition to a mutual fund giving fund diversity.

Guarantee Products are more lucrative than Fixed Income Instruments for less risky investors since they include inbuilt Life Insurance, which is otherwise not accessible on MF Exempt Exempt Exempt (EEE) Benefits, which is otherwise not available under MF Exempt Exempt Exempt (EEE) Benefits.

3. Liquidity

Except for ELSS, if we're talking about liquidity in terms of mutual funds. Although funds can be withdrawn within a year, 1% of the fund value (exit load) is deducted, and we have restricted liquidity in insurance due to a minimum lock duration of 5 years. Furthermore, insurance is an EEE product, whereas mutual funds attract LTCG/STCG.

4. Aids In The Creation Of Riches

Endowment policies also assist in wealth creation by investing a portion of the premium paid in various asset classes to beat inflation and build a corpus that may be used to meet financial objectives.

5. Tax Benefits

Tax advantages are available with insurance coverage. Section 80C of the Income Tax Act, 1961 exempts the premium paid up to INR 1.5 lakhs per year from taxation.


The endowment is best suited to persons who are pursuing a long-term wealth accumulation and investing strategy. It is retained as an asset until maturity works if it is for retirement, schooling for children, or other financial goals. This provides you with double savings as well as security rewards in one convenient package.

They are also offered through Mutual Funds for those who are unfamiliar with the equity market or the many fund options but want to benefit from long-term financial appreciation through equity investment. With the new stamp duty implementation, today's mutual funds are worse off, adding fuel to an investor's expense. For some, investing is simply a way to save money on taxes under Section 80C. However, the younger, more tech-savvy generation has begun to consider investing in life insurance policies or mutual funds, which can help them achieve financial independence.

Also Read: Are Endowment Plans A Good Investment Choice?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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