ULIP Plans vs Mutual Funds - Which is a Better Investment

ULIP Plans vs Mutual Funds – Which Is A Better Investment

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ULIP Plans vs Mutual Funds – Which Is A Better Investment

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  • Post last modified:November 8, 2023

An effective financial plan is necessary when you want to ensure your family’s financial security for the future. Have you ever found yourself at the crossroads of investment where you wonder which path will take to the right destination? If that rings the bell then you are at the right place. Today we will venture into 2 options for prominent investment. Mutual funds and unit-linked insurance plans, or ULIPs.These are two good ways to build wealth over time for your family’s financial security. Each option has its benefits and limitations but the problem arises when we have to choose between the two. As It’s Confusing, ULIP Plans vs Mutual Funds- Which is A Better Investment? And That’s why today we are going to help you to find which one is better for you. For that, we need to know the difference between ULIP Plans and Mutual Funds. We have offered you the insights below in this article. Let’s begin.  

What is a Unit-Linked Insurance Policy (ULIP)?

A combination of insurance and investment, ULIP (unit-linked Insurance Plan) has both benefits under a single-roof plan. An investor can benefit from the security of a life insurance policy while also gaining the potential to build wealth through ULIPs.

A portion of the premium paid for ULIPs is used to provide the investor with life insurance. To aid in long-term wealth creation, the remainder is pooled and invested in equity or debt instruments or a combination of the two.

What are Mutual Funds?

One of the most common types of investments today is mutual funds. To put it simply, it is a type of investment vehicle that collects investors’ funds and then invests them in various assets for a return.

To diversify the investment, mutual funds invest in multiple stocks. As a result, if any stock falls, another stock may compensate for it. Experts with a wealth of information carefully select the stocks. The stock price is another reason, as it is difficult to invest a small amount.

An asset management company (AMC) is responsible for managing the money of multiple investors in a mutual fund. The collected funds are invested in a variety of securities, including stocks, bonds, money market instruments, and so on. The performance of these underlying securities and your mutual fund scheme are directly correlated.

The experts in mutual funds who make appropriate asset allocation decisions and have in-depth knowledge of the financial market’s complexities and volatility are called fund managers.

Which is a Better ULIP Plan vs. a Mutual fund?

When we come to the point of ULIP Plans vs. Mutual Funds, we usually get confused. The difference between ULIP Plans and Mutual Funds is necessary to know before you select the one for investment. For that, we have brought all the information here together. 

The difference lies in the benefits they provide. It’s better to know the difference between the ULIP Plans vs Mutual funds before making a decision. When we contrast the benefits of mutual funds and ULIP plans, we might be able to determine which is a better option. Let’s begin.

Benefits of the ULIP Plan

  • It gives wealth creation and life insurance coverage at the same time.
  • ULIPs have a minimum lock-in period of 5 years, making it simple for investors to reach their financial goals in the future.
  • After the lock-in period is over, a partial withdrawal from the investment is allowed.
  • Under both the old and new income tax structures, ULIPs provide numerous tax advantages.

The investor is solely responsible for deciding whether to invest in ULIPs or mutual funds. An investor should consider their financial requirements before making any investments in any stock. The investor’s financial objectives, risk profile, and investment duration should all be taken into consideration when selecting an investment option. Make your choices carefully, and have fun investing! It is very necessary to find out about ULIP Plans vs. Mutual Funds -Which is A Better Investment. Let us look at those differences.

Benefits of Mutual Funds

  • The majority of schemes for mutual funds offer adaptable withdrawal options. Therefore, investors can withdraw funds at any time.
  • Lowering the risk associated with market-linked fund investments enables investors to construct a diversified portfolio.
  • The investment portfolio is entirely managed by a financial professional known as a fund manager.
  • Mutual funds provide a lock-in period of three years.

ULIP Plans vs. Mutual Funds Know the Difference

  ULIP Mutual Fund
Objective A long-time investment that gives life insurance coverage in addition to creating money. An investment that only helps people build wealth which yields returns over a while.
Regulating Board


It is regulated by (IRDAI)The Insurance Regulatory and Development Authority of India. It is regulated by (SEBI) The Security and Exchange Board of India
Investment Returns Depending upon the performance of the market, yields High returns. While debt mutual funds may yield moderate to low returns, investing in equity mutual funds will yield reasonable returns.
Policy Term Period It is a Long-term Policy. Depending on one’s financial objectives, short-term, medium-term, or long-term
Locking Period Five years of Locking period Tax-saving ELSS plans have a lock-in period of three years, whereas regular mutual funds do not.
Flexibility You have the option of choosing what amount goes for investment and what goes for life insurance. Similarly, depending on how the market is doing, you can switch between debt and equity funds. Provide no flexibility as you can’t switch funds.

Factors to Consider while Choosing Between ULIP Plan and Mutual Funds

Understanding the difference between ULIP Plans and Mutual Funds is necessary to gain some perspective on the two investment products. There are so many differences between ULIP Plans and Mutual Funds that differ significantly with each case. To know ULIP Plans vs Mutual Funds- Which is a Better Investment we will look at the following factors to choose between the both:

  • Scope

Mutual funds are made for making investments, whereas ULIPs combine life insurance with investment benefits for a single fee.

  • Returns on Investment

The difference between ULIP Plans and Mutual Funds is that, compared to ULIPs, mutual fund schemes carry greater risk. Lip’s returns are lower than average. The reason for this is that ULIPs promise a set amount regardless of whether the investment plan makes money. Mutual funds, on the other hand, have returns that fluctuate with risk. Debt mutual funds have slightly lower returns than equity mutual funds, but equity mutual funds have the potential to offer higher returns.

  • Flexibility in Investment

In the case of ULIPs, you have the option of deciding which portion should be invested and which should be used for life insurance. Similarly, depending on how the market is doing, you can switch between debt and equity funds. Investor in mutual funds is aware of whether they are investing in equity-oriented or debt-oriented funds. It can’t be switched between mutual funds.

  • Risk Cover

If a policyholder dies unexpectedly, the nominees for ULIPs are reimbursed for the insured sum. However, with mutual funds, the nominee receives ownership of the investments.

  • Costs

Mutual fund offers the advantage of low expenses and expert administration. Compared to mutual funds, ULIP schemes may charge significantly more.

Also Read: How to Save Money in India


In conclusion, ULIP Plans vs Mutual funds- Which is A Better Investment, The investor is ultimately responsible for choosing whether to invest in mutual funds or ULIPs after conducting a thorough comparison of the two. Before investing in any financial plan, evaluate your financial requirements.

Before making a decision, take into account your financial objectives, risk profile, investment duration, and ULIP returns versus those of mutual funds. The choice you make should meet your needs. In a nutshell, mutual funds’ primary objective is wealth creation, whereas ULIPs primarily protect the investor’s life.

ULIP Plans vs. Mutual Funds – FAQs

What is the basic difference between ULIP Plans and Mutual Funds?

Ans. The basic difference between ULIP Plans and Mutual Funds is that the ULIP gives insurance and creates wealth at the same time whereas the Mutual Funds only focus on creating wealth while Investing.

What factors to look for to know the difference between ULIP Plans and Mutual Funds?

Ans. You must look at the Benefits, Scopes, returns on Investment, cost, Risk cover, and Flexibility the investment is providing to know the difference between ULIP Plans and Mutual Funds.

ULIP Plans vs Mutual Funds- Which is A Better Investment to Invest in this Year?

Ans. According to your budget and your knowledge by comparison between the ULIP Plans vs Mutual Funds, you can get an idea of the better choice. The Main thing to consider while choosing between ULIP Plans and Mutual Funds Is the difference.

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