ULIP Versus Mutual Funds: The More Beneficial Investment Avenue

ULIP Versus Mutual Funds : The More Beneficial Investment Avenue.

Despite extensive approval of people regarding investments in Mutual Funds, ULIPs and other related schemes, there is still an air of incertitude about it.

Mutual funds and ULIP are often mixed ignorantly. Owing to inadequate knowledge of the subject, people may fall prey to irrelevant investments.

There are countless financial advisors if one is interested in seeking some counsel or recommendations.

This is evidently a smart step prior selecting investment policy and proceeding further.

What is ULIP?

ULIP expands to Unit Linked Insurance Policy. It is a policy which avails insurance facility as well as investment space.

Annual premium charged from the investors is allocated by the enterprise into different securities, such as equity shares, debt funds, government bonds, corporate bonds etc.

During maturity, return value includes, sum assured in insurance and respective investment gains generated from the market.

Returns in ULIPs usually grow by percentage of 10- 11%.

What is Mutual Fund?

A Mutual fund is an arena exclusively functioning with the objective of investment and gaining profits.

Herein, investors pool their money into some mutual fund schemes which are consequently invested into various monetary instruments such as, equities, stocks, bonds, debt funds, etc.

Returns and gains from mutual fund policies hinge on share market fluctuations predominantly. Nonetheless, it still dispatches the maturity with average gain of 12- 13%.

Mutual fund schemes do not offer any kind of insurance benefits unlike ULIPs.

However, both are definitely involved in the act of investing into different securities.

Features and Benefits of ULIP and Mutual Funds Compared:

A. Primary objective

 [ULIP]: Unit linked insurance plan primarily aim at providing insurance cover rather investments.

In fact, investing capitals into securities like equities, bonds, debt funds etc. is a subsidiary goal.

Some ULIPs provide death benefits in sum assured along with gross returns from the investments to the preferred kinship of the late policyholder.

This involves higher annual premium deposit into the scheme.

However, some policies compare sum assured and maturity value and the amount higher in both cases is then dispensed to the policyholder.

[Mutual Funds]: Foremost objective of mutual funds is investing the capitals into equity shares, debt funds, treasure bills, bonds etc.

It does not allow for any specific interests of investors unlike ULIP which provide insurance cover.

The returns from mutual funds are highly reliant on market conditions.

Also Read –How Much Part Of Your Salary You Should Invest in Mutual Funds?  


[ULIP]: ULIPs have an exhaustive list of expenses some are irrelevant and unnecessary.

Investors are charged fees at every step as premium allocation charges, policy administration charges fund management charges, surrender charges, switching charges, etc.

When precisely considered these charges decimate the average value of our maturity value? Thus, it comes as a flaw in ULIP.

[Mutual Fund]: There is solely professional management fees solicited for enrollment in mutual fund schemes.

Further, to curb abrupt withdrawal of investor exit load is charged by the company. However, it is capped to certain limits demarcated by SEBI.


[ULIP]: There is no provision in ULIP to inform investors about their investment.

They do not get any figures or facts as to how and where their capital was allocated. It merely limits itself to outright investment and risk coverage.

[Mutual Funds]: Mutual fund policies have a plus point regarding their concern about informing their investors.

People involved in the scheme are availed investment portfolio with their allocation details specifying each detail accurately.

Thus, they maintain a transparent bond with their investors, unlike ULIPs.


[ULIP]: Investments in ULIPs are stringently locked for 5 – 30 years. Investors are checked by setting high standard limits from pulling back their investments.

In case one reneges the policy, surrender charges are levied on the investors while their amount is redeemed at interest as low as 4%.

 [Mutual Funds]: Mutual funds generally have a lock- in period of about one year.

However, ELSS remains an exception with a lock- in period of 3 years.

E. Tax Benefits

[ULIP]: ULIP endows taxation benefits to investors on their capitals abiding by section- 80C of Income Tax Act, 1961 of Indian constitution.  Investment up to Rs. 1,50,000 is set immune of tax duty in ULIP.

However, taxes are levied upon returns whence annual premium exceeds 10% of the insurance cover.

[MUTUAL FUNDS]: Mutual funds allow tax benefits in ELSS or tax saving funds.

They do not impose taxes on investment up to Rs. 1,50,000 under section- 80C of Income tax act, 1961.

However, as per 2018 guidelines, of new LTCG Act returns shall be considered for taxation at 10% rate.

F. Extent of Risk and gains

[ULIP]: Since the investment is laid into equities and stock market, the extent of risk involved is high.

Apart from the insurance cover, relevant returns from the market in ULIPs are unexpected. Therefore, high returns too are away from clear surety.

[Mutual Funds]: The pooled capital is directly invested into equities, bonds, treasury bills etc. therefore our investments are at high risk.

High returns from investments in mutual funds are not promised inasmuch the outcome is subject to market ebbs and flows.


Any policy or mode should be analyzed and then selected, so it matches with our expectations. ULIP and Mutual Funds are two different notions, wherein the former allows insurance and investment while the latter is focused only on investment purpose.

Further Reading :



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