Where to invest – ULIPs or Mutual Funds?

Mutual Funds

Gone are the days when savings were sufficient to create wealth in the long haul. With the rising inflation around the globe, people are looking for investments that generate good returns. However, good returns usually come with good risk. People fear investing directly in the money markets or equity markets due to the high risk involved. While traditional investments like Fixed Deposits (FDs) have utterly low returns. This has led to an increase in the popularity of new-age investment options like mutual funds and ULIPs.

What is ULIP?

In simple terms, the meaning of ULIPrests on the concept of how life insurance is paired with investment opportunities. When you buy a ULIP, the premium that you pay to the insurance company is allocated differently than that of a pure life insurance policy. The premiums you pay are partly used for providing you with a life cover and partly invested in the funds of your choice. Here the policyholder is relieved since the life insurance components financially protect their loved ones, in case, they suddenly lose their life. The investment component enables wealth generation, which allows policyholders to meet their long term goals. These are several ULIPs available online and offline. You can do your research, use a ULIP return calculator, compare different plans, and then buy the one that suits your needs.

What are mutual funds?

The meaning of a ULIP  rests on what is stands for – UNIT LINKED INSURANCE PLAN. Its basic structure varies from that of mutual funds. While a ULIP provides insurance and investment, mutual funds only involve investments. When you buy a mutual fund, you invest in a fund of your choice based on your investment needs. You can check the portfolio of the mutual fund that you are planning to buy along with their past performances.

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Which is better?

Once you understand the meaning of ULIP and mutual funds, it is important to know in what factors they are different from one another. Here is the difference between ULIPs and mutual funds, which will give you a comprehensive view of what both have to offer:

The purpose of the product

A ULIP is a two-in-one product that provides life insurance along with an investment component. Mutual funds are a pure form of investment.


The ability of ULIPs to switch funds allows an individual to make the most of market fluctuations. Equity-based ULIP returns in 10 years are usually high.  Equity-based mutual funds provide reasonable returns, while debt-based mutual funds may have low-to-moderate returns. However, in mutual funds, you cannot switch your fund allocation.


ULIPs and mutual funds both offer various fund options that a policyholder can choose from based on their risk appetite. There are equity funds available for individuals who are willing to take risks. Debt funds are offered to people who are looking for safe investments. There are also balanced funds that comprise both, debt and equity.

In mutual funds, once you have selected the funds, you cannot change your allocation in the fund. Instead, you would have to redeem it and re-invest in a different fund. Whereas ULIPs allow you to switch your fund allocation anytime you want with your policy duration. Since both are market-linked instruments, this feature gives ULIP an edge, as by switching funds, you can profit from the market volatility. Using a ULIP return calculator, you can plan your fund allocation accordingly.

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Perks offered

ULIP offers dual benefits. They offer financial protection to the policyholder with their insurance component. With their investment component, they help individuals achieve their investment goals. The purpose of mutual funds is to generate returns alone.

Tax benefits

ULIPs offer tax benefits at several stages of the plan. The ULIP premiums that you pay are exempt from taxes as per Section 80C of the Income Tax Act. While, the money invested via SIPs or lump-sum in mutual funds are not exempted from taxes, unless it is an Equity-linked Savings Scheme (ELSS).

As mentioned above, ULIPs and mutual fund have different things to offer. Depending on your financial goals the choice here would vary. If you want a product that secures your life while providing returns on investments, ULIP is the ideal choice. While, if you are simply searching for an investment option, mutual funds are an option.

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