header Life Insurance

ULIP versus Mutual Fund Investment Battle: Know Where to Invest

By Vikas Chandra Das
21 July 2022, 11:46 AM
ulip vs mutual fund investment battle know where to invest

If you are an investor, then there is one big dilemma that must have troubled you quite often i.e. "ULIP or Mutual Fund – Where should I invest?"

For a sound financial plan, you must make strategies that would be advantageous for you in the long term. A sound financial plan can be created by making investments into the right product at the right hour to obtain the maximum return.

So, before you decide on investing in a ULIP or a Mutual Fund; you must understand the major differences between these two insurance products.

What is ULIP?

ULIPs (Unit Life Insurance Plans) is a strategic financial product that can offer the benefits of both investment and insurance as well. A portion of the premium will be deducted as mortality charges which would help you with life cover. The other portion of the insurance premium would be invested into different funds such as stocks and bonds. So, ULIPs would provide you an opportunity by which you would be able to earn market returns and also receive protection in the form of insurance cover. ULIPs are a perfect option for you if you do not have a problem with investing a lump sum.

In ULIP, your money could be invested in options like bonds, debts, equities, market funds, or even into hybrid funds.

What are the Benefits of ULIP?

The major benefits of investing in ULIPs are mentioned below.

  1. Life Cover 
    You would be able to obtain coverage against the risk of demise which is untimely. Your nominee would be able to obtain an assured death benefit in case of your untimely demise. In case, you have opted for a rider along with your ULIP then your nominee would also receive the rider benefit. The death benefit obtained is the value which is higher amongst the sum assured or the fund value.
  2. Addition of Top-up  
    ULIP also gives you the option of increasing the coverage of your base plan and your investment fund. Top-ups can be paid above your premium as a one-time lump sum investment. The additional amount which you pay through the top-up would give the scope to increase your sum insured and your investment amount. This facility can be availed any time during the tenure of the policy.
  3. Tax Saving Tool 
    Under Section 80C of the Income Tax Act, 1961; the premium which you have paid towards the ULIP is tax exempted. The payout which would be received by your nominee would also be tax exempted as per the provisions of Section 10 (10D) of the Income Tax Act, 1961 provided the sum assured is at least 10 times the annualised premium.

What are Mutual Funds?

Mutual Funds are an easy method to earn returns and are available for both long term and short term investments. The various options included under Mutual Funds are Equity funds, debt funds, liquid funds, tax-saving funds, hybrid funds, money market funds, etc.

You would invest money into a mutual fund that is operating with the help of a fund manager. The fund manager would be collecting funds from several investors. The Mutual Fund Schemes can be considered as investment schemes from where you would expect returns. The funds that are collected by the Fund Manager are invested in a scheme that is well-researched. The returns are then distributed among the investors.

What are the Benefits of Mutual Funds?   

  1. High Returns 
    In Mutual funds, you would have a very high potential of obtaining maximum returns. If you are interested in investing in short-term and long-term products, then you can opt for Mutual Funds.
  2. Liquidity 
    Mutual funds are very liquid. You can invest in them and can exit from them at any point. The only exception to this is the ELSS as it has a lock-in period of 3 years.
  3. Track Record 
    The market trends of Mutual Funds are available as they have been in the market for a long period. You can easily track the performance records of the mutual funds before investing and then make your decision.

ULIP versus Mutual Funds

FeatureULIPMutual Funds
Category of productInsurance and Investment productInvestment product only. There is no insurance component present in Mutual Funds.
InvestmentPart of the premium is used for providing life cover whereas the remaining part is invested into equity, debts, bonds, etc.A pure investment product.
InsuranceProvision for life coverNo life cover
Tax saving
  1. Premiums paid towards the plan are tax exempted up to INR 1.5 lakh under Section 80(C)
  2. Under Section 10(10D), the maturity and death benefit is tax-free subject to terms and conditions. 

Under Section 80(C), ELSS investments are exempted from tax up to INR 1.5 lakh. 

On redemption of mutual funds, it is subject to applicable taxes depending on the type of mutual fund (equity or debt) and how long you remain invested (long term or short term)

RidersComprehensive coverage can be obtained by adding ridersRiders are not applicable
TenureTenure would depend on you but to obtain good return time needed is 10 to 15 yearsNo specific tenure 
ReturnsOpportunities for good returns would depend on the market trend and the category of investment fundGood returns depend on market performance and fund allocation. Equity-oriented investments would give high returns.
When to consider as an optionIf you are willing to obtain financial security and can also deal with risk factors related to investments.If you want to earn high returns and also have money for disposal.
LiquidityUntil the lock-in period of 5 years is over.Comparatively, have higher liquidity except for ELSS, which has a lock-in period of 3 years
The ideal time for purchaseAnytime when you have a requirementWhen you have the disposal money 
Switching optionsSwitching in between fund allocations easily without any tax implicationLack of tax-free switching option. Switches are subject to tax implications
Minimum Lock-in period5 yearsNo lock-in period except for ELSS which has a lock-in period of 3 years
Charges of Fund ManagementIt is high during the initial years and then 1.35%Charges=2.5%

Which One to Choose for Investment- ULIP or Mutual Funds?

Your decision to choose a ULIP or Mutual Fund would mainly depend on your dependents and the amount of risk you are ready to take.

You can analyse your situation by asking some simple questions to yourself such as 

  1. Are there dependents in your family who are financially dependents on you?
  2. Is there a life cover for you?
  3. How much time your dependents would take to be financially independent?
  4. What are your financial goals?
  5. What is the level of risk you can take with investments – Low, medium, or high?

You should opt for purchasing ULIPs in the below-mentioned cases:-

  1. If you are interested to invest in a plan which is for a longer duration
  2. If you are interested in purchasing an investment along with financial cover for your family members in case of incidents
  3. If you are willing to have a tax saving tool

On the contrary, you can choose to purchase Mutual Funds if

  1. You are willing to have short term or medium term returns
  2. You are willing to make your investments liquid
  3. You have already purchased term insurance plan for financial coverage of your family

However, you might be interested in purchasing both investment and insurance together. So, in such a case the systematic approach to do so is

1. Purchase Low Charges ULIP

After 2010, the charges imposed on ULIPs such as Mortality charges, Premium Allocation charges, Fund Management charges, etc. have been reduced to a lower percentage. This has invested ULIPs quite easily and economically. So, by purchasing ULIPs online you can easily save on charges levied for agent commission, policy administration charges, premium allocation charges, etc.

2. Purchase Term Insurance and Mutual Funds

Another convenient way to obtain both investment and insurance together is by

  1. Purchase a term plan with high cover and nominal premium
  2. Make investments into Mutual funds which would give high returns in a short duration.


While investing it is quite obvious that you have a fixed budget. So, you must find out the best option for investment and invest to obtain the maximum returns. If you are planning to invest in ULIP or Mutual Funds, you must understand the differences carefully and then choose the one which is apt for your goals and tenure.

Life Insurance banner
Life Insurance

Upto ₹25 Lakh Saral Jeevan Bima

Enter your details to buy Life Insurance
/ /
By proceeding, I agree to the Terms & Conditions