ULIP or Mutual funds- where to invest?



ULIP or Mutual funds- where to invest?

 Meaning of ULIP

A Unit Linked Insurance Plan (ULIP) is a product offered by insurance companies that, unlike a pure insurance policy, gives investors both insurance and investment under a single integrated plan.

 Meaning of Mutual Funds

A mutual fund is a professionally-managed investment scheme, usually run by an asset management company that brings together a group of people and invests their money in stocks, bonds and other securities.

Difference between ULIP and Mutual Funds

Point Of Difference ULIPS Mutual Funds
Regulators IRDA SEBI
Primary Objective Insurance + Investment Pure Investment
Type Of Investment Good for long term investors Good for short to medium term investors
Flexibility Limited Flexibility – can switch to funds offered by your policy company Very Flexible – can switch to any fund available in the market
Entry Load Huge entry load, from 5 to 40% No or small entry load
Liquidity Limited Liquidity, minimum 5 years of investment required Very Liquid, Sell your MF anytime except ELSS
Tax Benefit All ULIP investments are qualified for tax benefit under section 80C Only ELSS investors are qualified for tax benefit under section 80C
Investment amount Determined by the investor and can be modified later Minimum investment amounts are determined by the fund house
Charges Higher charges Low management fee
Expenses High Expenses – As there is no upper limit determined by the insurance companies Low Expenses – Upper limits for expenses is pre – set by the regulators
Transparency Lesser transparency Greater Transparency
Maturity Period Normal maturity period is 5 to 20 years No maturity or lock in period except for ELSS
Lock-In Period 5 Years Lock-In Period No Lock-In period except for ELSS i.e 3 years.
Life Cover Yes No Life cover
Post Maturity In ULIP you do not have the option of staying invested post-maturity. You have the option of staying invested in the scheme even after maturity.
Nominee Receivables higher of sum assured or fund value in case of death of insured. (In some policies both). 125% of the single premium paid in case single premium policy. Nominee will receive the fund value.
Track Record Limited track record as ULIPs are comparatively newer in market Longer history or record of performance helps investors choose the right fund.
Risk Exposure Relatively Less Risky Relatively Risky
Return On Investment Potential return on ULIP is low as risk exposure is low and there is a guaranteed sum assured value which will be paid in case of death of the insured irrespective of funds making money or not. Potential return on Mutual funds is higher in hybrid mutual funds where risk exposure is higher.


ULIPs and Mutual funds offer a variety of products based on risk profile. Investors should understand their risk profile and investment period and then decide accordingly. If an investor has low risk profile and an investment horizon of 3 years, investing in ULIPs or mutual funds with major portion in equity is not a good idea. Similarly an investor with longer investment horizon and high risk appetite should go for equity oriented mutual fund or ULIPs with bigger exposure to equities.


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