Ulip vs Mutual Fund – Which is Better


If you want to Invest in Ulip or Mutual Funds, but not sure what product should be better for you. We do an analysis of ULIP vs Mutual Fund and putting the conclusion over it. Ulip and Mutual Funds both are the same types of products and for investors who wish to maximize their wealth over a longer period of time and look for market-linked returns.

Ulip Vs Mutual Fund

Ulip stands for Unit Linked Investment Plans, is a balanced combination of investment and Life Insurance, which simply means that it provides risk cover for the policyholder along with gives you opportunities to invest in finance segments like stocks, bonds, and mutual funds.

A Mutual Fund is an investment cycle, where money pooled from various investors is invested in company shares, stocks or bond on their behalf. Investing in a mutual fund is relatively safe and easy than other investment option because it’ not only handle by the mutual funds experts, but also it is registered with SEBI, and therefore quite safe and secure.

Difference between ULIPs and Mutual Funds

Comparison Parameter ULIP Mutual Fund
Scope of Investment Investment + Insurance Investment only
Liquidity ULIPs have limited liquidity because the minimum lock-in period for Ulip is 5 years MFs are more liquid then Ulip. Only ELSS schemes are an exception due to the minimum lock-in period of 3 years
Tax Deductions Under section 80C of the Income Tax Act, 1961 Invested money will be deducted from your total taxable income Only Equity-Linked Saving Plans are exempted from tax upto Rs. 1.5 Lakh under section 80C of the IT Act 1961
Riders You can get complete and comprehensive protection by adding up riders No riders available
Tenure Depends on you. However, if you wish to earn good returns make an investment for 10 to 15 years, however, the minimum lock-in period is 5 years No specific tenure.
Lock-in Period The minimum Lock-in period for ULIP plans is 5 years Many of the Mutual Funds Plans don’t have any lock-in period, except ELSS that comes with 3 years of the lock-in period
Switching Options Flexible switching option is available Only some of the mutual funds offer switching options
Risk Moderate Risk Depends on Plan you are investing it may be Low risk, Medium Risk or High Risk
Fund Management Charges (FMC) MC is comparatively low, Say 1.35% FMC is higher, around 2.5%

Types of ULIP Plans

  • Retirement ULIP Plans
  • Children Education ULIP Plans
  • ULIP Plans for Health Benefits
  • Unit Linked Investment Plan for Wealth Collection

Types of Mutual Funds

  • Equity Mutual Funds
  • Debt Mutual Funds
  • Hybrid Mutual Funds
  • Solution Oriented Mutual Funds

ULIP Vs Mutual Fund Key Features

  • Key Features of ULIP Plans

    1. When you choose any ULIP plan you get insurance plus investment option that means life covers with the investment.
    2. ULIPs offers the advantage of EEE, which means the customer is eligible for a tax deduction during investment, earning and withdrawal stages.
    3. ULIPs offer you the switching opportunity that means you can shift your fund from equity to debt as per your risk appetite.
    4. Minimum locking period for 5 years during which you cannot claim your amount.
    5. FMC is low, about 13.5 percent.
    6. There are five types of charges in ULIPs – Mortality charges, premium allocation charges, fund management charges, and administration charges.
  • Key Features of Mutual Funds

    1. When you choose any Mutual fund plan, you get only a pure investment product.
    2. Mutual Funds investors are eligible for the tax deduction up t0 1.5 lakh on Equity savings plans or ELSS.
    3. Not all Mutual Funds offer switching flexibility. Only switching is applicable between schemes of the same fund house.
    4. Minimum locking period of 3 years, during which you cannot redeem your amount.
    5. All mutual funds are registered with SEBI, so it is safe and secure.
    6. There are only two types of charges, one-time charge, and a recurring charge.

Tax Benefits of ULIPs and Mutual Funds

Ulip vs Mutual fund debate is more than a decade old because the returns from both financial instruments are almost similar. Here, we have mentioned all the tax benefits of ULIPS and mutual fund so that you will easily decide which one gives you more flexibility and liberty.

  • Tax Benefits of ULIPs

    ULIPs offer triple tax benefit structure and initial tax is saved under 80 C.  So, the premium paid towards this policy up to 1 lakh can save up to 30 lakh depending on the tax bracket. The final unit at maturity is tax-free under 10 (10D). Thus the tax is free for the policyholder as well as the nominee.

  • Tax Benefits of Mutual Funds

    At Mutual fund, only investments made in ELSS is tax-free up to the limit of 1.5 lakh under the section of 80 C of the income tax act.

ULIP vs Mutual Fund Which one is Better?

Invest in ULIP

  • If you are seeking for the long investment with insurance, which is longer than 10 years.
  • If you can pay a premium every year until the defined premium paying term.
  • If you have a low, medium and high-risk appetite.

Mutual Fund Investment

  • If you already had a family insurance plan and want to invest money in stock market, bonds, and shares.
  • If you have a low, medium and high-risk appetite you can choose Mutual Funds
  • Once you start investing, you can choose investment as per your choice.

1 Comment

  1. Radhika Shah on

    I think Mutual fund is the best investment option for investors. The choices are many and you get access to different investment strategies. Even if you choose a fund or fund house that does not perform as expected, you can easily redeem your investments and invest elsewhere. However, in ULIPs the process is not easy and is riddled with costs.

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