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ULIP VS Mutual Fund


Aman and Varun Both are friends. Aman invests INR 50,000 in the ULIP, and Varun buys the same mutual funds. All the money has been invested for both the boys. Now, each month, a piece of Aman’s instalment is deducted as a term cover. This cover prizes him with life insurance worth INR 5 Lakhs.

On the other hand, Varun has to buy a separate life insurance cover for the security of his family. Now, in case of the sudden death of Aman through an accident, the family will receive the term cover of INR 5 Lakhs or the value of the fund invested, whichever is deemed to be higher. This case does not apply to the story of Varun. If only Varun knew the difference between ULIP and Mutual Funds, he could have made a proper decision.  

ULIP and Mutual Funds

ULIP is an abbreviation for Unit-Linked Insurance Policy. A ULIP is a life insurance policy that provides a combination of risk cover and investment. ULIP is a unique offering that allows you to avail the benefits of both assets and life insurance cover under a single plan.

Mutual Funds is a Pure investment product or, we can say, a single financial trust where the money is pooled together from several investors in various market-linked funds to earn a return. Mutual Fund can invest in equity and invest in debt and can invest in either or both.

It has been a popular investment field in the financial market for long-term wealth creation. Also, it is one of the most common investment options today. There are different types of Mutual Funds offered in India, like Equity Mutual Fund, Debt Mutual Fund, other types of funds.

ULIP VS Mutual Funds

They both are identical but quite different, sound a lot the same but not the same at all. ULIP VS Mutual Funds often competes with each other. It is the kind of battle that has been going on for some time now with both. While they Both have their respective Merits and Demerits, it is up to the individual to decide which financial products they want to invest in.

We all understand that this is one of the most challenging decisions, and everyone gets confused between ULIP VS Mutual Funds and which is the better investment option. The below explanation will help you get some idea and perspective. We will be discussing the difference between ULIP and Mutual Funds and the factors that influence them in detail.

Difference Between ULIP and Mutual Funds 

Mutual Funds and ULIPs are similar yet very different from each other. So, how do you decide which one is the better option? There are some Key differences between ULIP and Mutual Funds that will help you gain some insight into ULIPs VS Mutual Funds.

1. Tax Benefits:     

  • ULIPs- Two tax benefits are generally offered. The 1st one is the benefit of tax deductions o premiums paid under Section 80C and 10(10D) of the Income Tax Act on the amount invested. The 2nd one is low or no taxes on maturity proceeds and capital gains. 
  • Mutual Funds- Most Schemes do not carry any tax benefits.   

The one exception to this is the funds under the ELSS or equity-linked savings scheme category that qualify for lessening under 80C of the current Income Tax Act. 

Regarding taxes on the capital gain, mutual funds investors have no pause and have to pay tax on short-term and long-term capital gain across all mutual fund categories, including the ELSS fund. 

2. Lock-In-Period: 

  • ULIPs– It has a period of 5 years where you can keep your money locked. It forms a comparison perspective equivalent to that of the National Savings Certificates or the tax-saving fixed deposits. 
  • Mutual Funds- There aren’t any lock-in periods for regular mutual funds. But then there are two exceptions: Firstly, ELSS has a lock-in period for 3 years. The Children’s Fund and the Retirement Fund has a lock-in period of 5 years. 


3. Fund Options & Assets Classes: 

  • Mutual Funds- There are thousands of mutual fund schemes across dozens of categories. Fund choices are one area where mutual fund companies outscore ULIPs.
  • ULIPs– ULIPs do not have any fund options and often come with the common equity and debt variants, and this is one of the major differences between ULIP and Mutual Funds.


4. Performance:

Our Analysis shows that the category performance of ULIPs was lower than the category returns of a mutual fund but was not alarmingly low. There are two issues with the ULIPs: 

  • ULIPs don’t have a porting feature. This means that if you are not happy with your insurance company’s ULIP plan’s. You don’t have the option of moving your portfolio to another insurance company that might have a better investment team. 



In our opinion, the choice between a ULIP or mutual fund comes down to understanding how either product fits into your investment plan. Therefore, if you invest in ULIP or Mutual Funds, then make sure you consider these all differences and choose the best option of your choice.


Can ULIPs give high returns?

ULIP returns depend on the policy. You can invest in equity funds, debts funds, or a combination of the two. The returns separately depend on the fund's market performance that you chose. So, It's all up to your level of understanding regarding the market performance of the funds.

Are ULIP and Mutual Funds the same?

They both look the same but yet very different. A mutual fund is a pure investment product that benefits returns in the long term. On the other hand, ULIPs are primarily an insurance product and the security of Life Cover with the added advantage of being a market-linked investment.

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