What Is Better- Ulip Or Mutual Funds


You, like everyone, are unique and different. You always believe in this and want to put your creative stamp on all the things that you do. But that may not extend to your investment strategy. You somehow think it would work for you too if it had worked for your friends or colleagues. That is a big mistake made while investing. It is a kind of thinking that stems from the belief that one must invest money in various instruments, which at a point, offers the best returns.

All of you are chasing out returns. But what about your goals?

While investing money in various financial instruments, you must consider your goals, both short term, and long term. There are many investment plans offered in the market, out of which you can get high returns from ULIP and mutual funds. However, when we chase returns, we seem to neglect other factors such as length, risk, taxes, and liquidity.

Let us dig deeper into these two investment opportunities to help you understand which way to go.


ULIP refers to Unit Linked Insurance Plan. When you pay the premium for a ULIP plan, a part of it goes into insurance coverage, and the rest goes into equity, mutual funds, bonds, and other investment opportunities. As a ULIP policyholder, you also pay additional charges like processing fees related to premium distribution, fund management, administration, and mortality.

ULIP in India usually has a five-year lock-in period. During this time, you are advised to consistently make your premium payments and focus your lives on cost-cutting steps. These plans also come with tax benefits under the Income Tax Act and are thus, quite popular amongst investors.

Image Courtesy: Shutter Stock

Mutual Funds

These are professionally managed funds that pool money from investors to further invest in securities. The aggregate amount is invested according to the fund’s investment goal in bonds, money instruments, stocks, gold, and other related securities.

Mutual funds are run by portfolio managers or fund managers, who aim to generate growth or value of the sum for investors by investing following the stated investment objective.

A debt fund, for example, has its specific objective of investing in fixed income instruments or products such as bonds, government securities, debentures, etc. An equity fund likewise invests in stocks and other equity instruments.

Difference Between ULIP and Mutual Funds:

These two investment choices may appear similar at first glance, but they aren’t. There are several differences between ULIP in India and mutual funds, some of which are as follows:

(i) Return on Investment

The returns from both ULIP and mutual funds are market-linked. However, in ULIP, you also get a life cover component along with the investment part. With mutual funds, the returns depend on the types of funds you have chosen as a part of your investment strategy.

(ii) Lock-in Period

ULIP is an insurance product. Therefore, the lock-in period for such an investment is specified by insurance firms in which the investment cannot be redeemed. ULIPs have a five-year lock-in duration and provide risk protection. On the other hand, most of the mutual funds do not have a lock-in period. But in some cases, such as ELSS, the lock-in period is three years.

(iii) Transparency

ULIPs are technically advanced investment plans that provide a combination of investment and risk protection. They have a less clear system around underlying costs and distribution of funds.

Mutual funds are relatively open regarding fees charged and portfolio holding.

(iv) Taxation Benefits

Investment in ULIPs is deductible under section 80C of the Income Tax Act, 1961, i.e. you can avail tax deductions of up to Rs.1.5 lakh per year on your investment in ULIPs. Along with this, you can also check TDS refund status and generate rent receipts for Income Tax Filing.

Whereas mutual funds only offer a tax deduction against ELSS investments. Investing in any other scheme of mutual funds does not provide tax relief.

Image Courtesy: Shutterstock

(v) Expenses

Mutual funds offer the benefit of low cost and professional administration. SEBI has limited the mutual fund investment ratio at 1.05 percent while ULIPs do not have such a limit. The ULIP schemes charges can go much higher than the mutual funds.

(vi) Risk Cover

ULIPs come with an in-built insurance plan offering the sum assured to the family if the policyholder dies within the policy term. Nevertheless, there is no liability protection by compensation in the case of mutual funds.

Even a single penny is precious when it comes to investing your hard-earned money. You must invest in financial instruments that not only yield good returns but over time but matches your life goals. Investment plans like ULIP from reputable insurers such as Max Life Insurance allow you to secure your goals while earning substantial tax savings. These investment opportunities also encourage you to diversify your investments so that you and your loved ones can take advantage of 360-degree financial security. Also, make sure you understand the fine differences between various financial instruments before adding them to your investment portfolio.


Related Tips