Every investment has certain long-term objectives. There are both short- and long-term bases for it. When choosing an investment, consider your demands for liquidity, returns, fund safety, taxability, and simplicity of choice. Today we are going to compare the best two investment instructions: ULIP Vs Mutua Fund.

Overview: ULIP Vs Mutual Fund

ULIP Vs Mutual Fund

While comparing ULIP (Unit Linked Insurance Plan) and mutual funds, we first need to know about them. A mutual fund, or ULIP, is an attractive investment option that makes long-term investments. Mutual funds may be invested in, but ULIPs combine insurance and investing. In ULIPs The money invested in ULIPs and mutual funds is invested in equity, debt, and hybrid funds. There are several distinctions between mutual funds and ULIPs. There is no lock-in period in mutual funds, but in unit investment partnerships (ULIPs), the lock-in period is five years.

In case you have a tax-saving mutual fund, such as an equity-linked savings scheme (ELSS), has a lock-in period of three years. ULIPs have limited liquidity, mutual funds have sufficient liquidity from which you may withdraw money.ULIPs have compulsory monthly premium payments that cannot be paused. Mutual funds allow you to pause SIPs between payments. 


The important thing to remember when comparing ULIPs and Mutual Funds is to know the key factors involved.

Insurance Component

The ULIPS offers investment and insurance services. There are three key benefits to ULIPs: life insurance, insurance coverage, and investment returns. Mutual funds only offer investment options, but no insurance coverage.


Mutual funds have a lower expense ratio than ULIPs. The greater costs of ULIPS include allocating expenditures, fund management, administration, morality, and policy. Mutual funds are renowned for their excellent performance, flexibility, and frequently without additional costs while investing. Although ULIPs offer the same platform, institutions and ordinary investors do not follow them to the same extent. The best ULIP fund might not be well-known to investors.


ULIPs offer more flexibility because of their long-term commitment. ULIPs are more advantageous because you can invest for 15 – 20 years and get the benefit at maturity. Mutual funds allow you to switch to a better fund strategy and exit anytime you want or remain invested for a long period.

Lock in Period

ULIPs have a 5-year lock-in period, whereas mutual funds do not have a lock-in period unless it is a three-year lock-in scheme like ELSS.


A ULIP always had a tax advantage over a mutual fund, but the new LTCG tax has accentuated it. In terms of taxability, sec 10 ULIPs give investors an ideal advantage since they don’t charge tax on capital gains. In light of the new LTCG tax, mutual fund investments are becoming more expensive based on the tax rate and the holding period.


ULIPs give investors and insurers the benefit of accumulating wealth and securing their futures. As a result, ULIps have a minimal risk factor. In contrast, mutual fund investment vehicles have no insurance covering their risks.

Liquidity :

When it comes to liquidity, Mutual Funds are better than ULIPs since ULIPs are long-term investments, while mutual funds offer liquidity. A mutual fund can be exited at any time, and a partial withdrawal can be made at any time. If you want to withdraw money from ULIPs, you can have to wait 5–15 years for the lock-in period to end. A non-payment of ULIP can make you more costly, while mutual funds allow you to invest at a low cost. As a result, mutual funds are a more convenient way to withdraw money without incurring any additional charges. Mutual funds serve the best investment goals for liquidity purposes.

ULIP Vs Mutual Fund: Tax Benefits, Insurance Coverage, and Return on Investment

To compare ULIPs vs mutual funds, you must consider their tax benefits, insurance coverage, and return on investment. Get to know more about it so that you can make an informed decision.

Tax Benefits

ULIPs: According to section 80c of the Income Tax Act 1961, ULIP can claim tax deductions up to Rs 1.5 lakhs a year. As well, under section 10 (10D), the maturity proceeds can be applied to the death benefits received.

Mutual Funds: Mutual funds offer a tax deduction only for ELSS investments under section 80c.

Insurance Coverage

ULIPs: ULIPs are a better option overall since they provide investment goals, insurance coverage, and life insurance. When the policyholder passes away, the nominee will receive the fund value.

Mutual Funds: Mutual funds aim for investment. It provides greater rewards in the long run. 

Return on Investment ( ROI )

ULIPs: In general, ULIPs, which include stocks and bonds, offer more tax advantages due to their five-year lock-in period. As a result of market fluctuations, returns are unpredictable.

Mutual Funds:  Mutual Funds provide higher returns depending on whether they invest in equity, debt, or hybrid funds, depending on their risk and investment objectives.

Comparative Analysis:

A person’s financial objectives and risks play a big role in their decision between ULIPs and mutual funds. It is up to the investors to make their decision, based on their analysis of the situation and their needs. The right investment depends on the financial goal, the risk factor, and the investment duration. If one is looking for liquidity, one can consider mutual funds.

If one wants a fixed period, one can go with ULIPs, which have a lock period of at least five years. In the case of a person looking to invest and to cover their life insurance needs, the ULIPs are the better option. Choosing between these two investment vehicles requires a careful and thorough assessment of one’s financial goals, risk tolerance, and insurance coverage. There is a lot to consider when making a decision, and it can be difficult for everyone to make the right one. 

Differentiate the two-parameter of the ULIPs vs Mutual Funds

In the following table, we outline the 6 differences between ULIPs vs Mutual funds.

Basis of difference

ULIPsMutual Fund
Tax Benefits It provides a section 80c tax-free deduction. Furthermore, it provides the tax-free maturity amount under the Income Tax Act of 1961, Section 10(10D).Following section 80c, you can deduct up to 1.5 lakhs of taxes.
Lock-In PeriodIt holds 5 years lock in Period.It has no lock-in period except a 3-year scheme like ELSS.
FeesIt has high charges due to premium allocation and mortgage charges.Fees are lower; expenses, exit loads, etc.
Insurance CoverageIt covers investment goals, insurance coverage, and Life insurance.Doesn’t Include any Insurance coverage
Switching OptionIt allows them to switch options on their investment plans.No Switching Option 
Policy TermLong TermA short-, medium-, or long-term plan depends on the individual’s financial goals


Of course, our previous discussion on “Mutual Funds vs Fixed Deposits” received a great response. But a search for “ULIP vs mutual fund” will find you with many specific factors to consider.

Astute individuals need to invest prudently to achieve their financial goals. Several factors affect the decision between ULIP vs Mutual Fund, including financial goals, risk, insurance, duration, and returns. In general, people know that investments are risky, but they prefer high-return and low-risk investments. The mutual fund industry offers good flexibility, higher returns, low costs, and long-term investing, but also has a risk factor. ULIPs, on the other hand, offer lower risk, investment goals, insurance coverage, and life insurance with a 5-year lock-in period. If you need advice, many experienced financial advisors can fulfill your investment goals according to your preferences.

By The Invest Advisory

We are one of the top investment advisory firms, registered with SEBI, that gives investors the most recent information & news on stock markets.