Advantages of ULIPs over Mutual Funds

5 Advantages of Unlit-Linked Insurance Plans ( ULIPs) over Mutual Funds

A well-informed decision to choose an investment plan may help you build 2X wealth and ensure the financial future of your family. ULIPs (unlit-linked insurance plans) and mutual funds are both appealing investment options for people aiming to build long-term wealth.

Today, mutual funds are known to be one of the most popular investment options. Clearly stated, it is a type of investment vehicle that collects funds from investors and then invests it on their behalf in various assets in order to generate a profit. It’s similar to riding the vehicle when the driver transports all of the passengers to the same location. The money manager is the driver, the vehicle is the mutual fund plan, and the customers are the investors in this scenario. 

1. What are Mutual Funds?

Mutual funds are a type of financial contract in which money is gathered from a number of different participants and then invested in a variety of market-linked funds. These shared investments are managed by a fund manager, who is generally a financial specialist. This investment option offers investors access to a professionally managed investment. The fund manager’s principal goal is to give the best possible returns to his or her clients.

2. What are ULIPs, and How unlit-linked insurance plans works?

ULIPs are one of the most common and current financial instruments available to investors. Unit-Linked Insurance Plans (ULIPs) are financial products that provide insurance coverage while also producing profits through various investments. Similar to mutual funds, the insurance provider offers this plan and motivates investors to enroll. unlit-linked insurance plans invest in stocks, debt securities, and bonds. 

3. ULIPs vs. Mutual Funds

It is critical to grasp the distinctions among mutual funds and unlit-linked insurance plans when comparing the two financial tools. On the one hand, a ULIP is an insurance policy that also allows consumers to participate in the market based on their financial goals and risk tolerance. A ULIP combines the advantages of a life insurance plan with the ability to invest in a wide range of market investment vehicles, including mutual funds, equities, and bonds, among many others.

Additionally, with a unlit-linked insurance plans, you may tailor your investment strategy to meet your specific funding requirements, generating market-linked returns while taking into account your income, objectives, and risk tolerance. In ULIPs, you may pick from four basic funds: equities funds, which have the greatest risk component; income/fixed interest/bonds and balanced funds, which have a moderate potential risk; and cash funds, which have a lower potential risk.

Mutual funds are an investment vehicle in which investors combine their money to achieve a common financial goal. The money will then be managed by a fund manager, who will invest it in a number of investment alternatives, such as corporate stock, bonds, and shares.

Mutual funds are divided into groups depending on their asset class, structure, investment objectives, and risk. One of the most prevalent ways to categorize mutual funds is nothing but according to their asset class. Equity, debt, money market, and hybrid funds are among them.

4. Difference between Mutual Funds and ULIPs

These two investing alternatives have a number of distinctions. Some of the key differences between unlit-linked insurance plans and mutual funds are as follows:

Investment return

The unlit-linked insurance plans results are on the lower end of the scale. The reason for this is that unlit-linked insurance plans guarantee a predetermined payment regardless of whether or not the investment plan is profitable. Mutual fund returns, on the other hand, fluctuate based on the risk element. While equity mutual funds have the ability to provide larger returns, debt mutual funds have the ability to provide slightly reduced rates of return.


ULIPs are complex products that combine risk protection with investment. In terms of underlying expenditures and asset allocation, these have a lesser transparent structure. Mutual funds are quite transparent regarding the fees they collect and the assets they keep in their portfolio.

Tax Benefits

Investments in ULIPs are qualified for income tax deductions under Section 80C of the Income Tax Act, 1961, allowing you to claim tax breaks of up to Rs.1.5 lakh each year. Mutual funds, on the other hand, only provide a tax deduction for ELSS investments. No mutual fund plan will give tax benefits, and redemptions will be taxed according to the appropriate tax bracket.


Low expenses and expert management are two advantages of mutual funds. The cost ratio for mutual funds is regulated at 1.05 percent by SEBI, but there is no similar restriction for ULIPs. ULIP plan fees might be substantially greater than mutual fund fees.

Lock-in Period

A ULIP is simply a type of insurance. As a result, insurance firms set the lock-in time for such an investment, during which it cannot be returned. ULIPs have a three- to five-year lock-in period, based on the type and format of the investment program. Mutual funds typically have a one-year lock-in time, while others, such as ELSS, have three-year lock-in periods.

Coverage of Risk

ULIPs provide a built-in insurance policy that pays the sum promised to the policyholder’s dependents if the insured dies during the policy’s term. In the context of mutual funds, there is no risk cover in the form of coverage. You must get a secondary insurance policy and pay an extra premium if necessary.

5. Which is Better Investment; ULIP, or Mutual Fund?

ULIPs are, in fact, a fairly versatile investment vehicle. ULIPs provide you the freedom to transfer effortlessly from one fund to the other, reclaim a portion of your assets in the event of a catastrophe, and choose the distribution of money for renewal premiums. All of this ensures that you can make use of market instability to optimize your investment returns with minimal effort.

ULIPs also provide tax benefits under Section 10(10D) of the Income Tax Act. This merely implies that they are exempt from the long-term capital gains (LTCG) tax. Since mutual funds are subject to the long-term capital gains tax (as of April 1, 2018), ULIPs protect consumers from the tax and allow them to choose between equities, debt, and cash-oriented funds.

Bottom Line

In short, ULIPs’ major purpose is to cover the investor’s life, whereas mutual funds’ main objective is to create money. So, make the most viable decision that better meets your needs and demands. Never make a hasty investing choice; do your homework and study before making a final selection. 

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