ULIP v/s Mutual Funds

ULIPs or Unit Linked Insurance Plans and Mutual Funds are two different types of investments which individuals continue to invest in today. Both these types of investing options differ in several aspects like liquidity, tax benefits which they provide, charges associated, fund switching options, etc. If you are planning on investing in either of these two plans, it is important to be aware about all important aspects surrounding both these investments. Given below are some key differences between ULIPs and Mutual Funds.

Description ULIPs are Unit Linked Insurance Plans offered by insurance providers which enable investors to invest a part of their insurance premiums in various funds like debt fund, equity fund, money market fund, hybrid fund, etc. A mutual fund is a pool of funds collected from various investors and utilized towards investing in a variety of securities chosen as per a pre-decided investment goal.
Objective of Investing Unit Linked Insurance Plans are ideal for long-term investing as they offer twin benefits of investing and insurance protection. Mutual funds are of various types and each type of mutual fund carries a distinct investment goal. Mutual funds are suited for short to medium-term investment goals.
Fund Switching Options With Unit Linked Insurance Plans (ULIPs), investors can switch between the funds which are linked to the plan. As a result, investors can choose to alter the risk return on their plan as per their choice. Mutual funds do not allow investors to switch from one fund to another. In case you are not happy with the performance of a certain fund which you’ve invested in, you have the option of exiting the fund completely. This can be done by paying exit charges, if applicable.
Liquidity Unit Linked Insurance Plans offer limited liquidity as compared to other types of investments. In order to encash the invested units, investors must continue their investment for a minimum period of time. Mutual funds offer easy liquidity wherein investors can easily sell their shares and receive the funds in a short period of time, usually within 1 or 2 business days. This is not applicable for ELSS and funds which have a specified minimum lock-in period.
Associated Charges Unit Linked Insurance Plans levy Mortality charges towards the life insurance cover which it provides. Alongside to Mortality charges, ULIPs may also levy other charges like Administration charges, premium allocation charge and fund management charges. Charges applicable as part of mutual fund investments include annual fund management charges, entry load and exit load charges.
Ease of Investment In comparison, ULIPs are more structured than mutual funds. For a ULIP investment, your income and financial goals will be assessed by an insurance advisor, who will then formulate an investment plan crafted to your needs. As a part of the investment, you will be required to pay a fixed amount as premium for a minimum duration of 5 years. If you wish to exit the ULIP before the completion of the minimum investment period, you may do so but at the cost of certain capital losses or stand to lose a part of your premium. Mutual funds offer much better flexibility to investors in terms of investing. A mutual fund investment is one of the easiest to do as it can be started with the minimum of capital for a short term, as low as 12 months. Known as SIP or systematic investment plan, they are extremely affordable and offer a great channel to consolidate savings. Also, unlike ULIPs, investors can easily withdraw from an SIP without having to pay any penalty or charges.
Portfolio Disclosure As proof of transparency of investments, Unit Linked Insurance Plans are required to reveal their portfolios every quarter. Some ULIPs also disclose their portfolios on a monthly basis. As per SEBI guidelines, mutual funds are required to make their portfolios available to investors on a quarterly basis. Some mutual funds do this on a monthly basis . This is done so that investors can not only have knowledge about the portfolio but also get to evaluate whether or not the money invested is yielding returns for them.
Asset Allocation Flexibility With regard to migrating across asset allocation plans, ULIPS offer greater freedom. Investors are allowed a specified number of free switches in a year. In case they exceed the number of free switches, the insurer may levy a nominal fee for every switch beyond the free limit. When compared to ULIPs, mutual funds offer lesser flexibility with regards to migration across plans. This flexibility can be especially helpful for experienced investors who wish to switch from equity funds to debt funds when the market is at its peak or wish to switch from debt funds to equity funds when the market is not performing. Also, if an investor wishes to migrate to another mutual fund under the existing fund umbrella, they will only be permitted to do so at a cost, usually with regards to the entry load or exit load.
Tax Benefits As per the regulations of Section 80C of the Income Tax Act, premiums paid up to the amount of Rs 1,00,000 towards ULIP investments will be eligible for deduction from the income. Similarly, as per Section 10(10D), proceeds earned from ULIP investments are also tax free. Only those investments which have been done in tax saving funds will be eligible for tax benefits under Section 80C.
Additional Benefits Certain Unit Linked Insurance Plans offer investors loyalty or additional benefit by way of issue of added units of the fund. Mutual funds do not offer any additional benefits.


Mutual Fund investments will be subject to market risks. Any mutual fund listed in the document does not guarantee fund performance or its underlying creditworthiness. Do read the mutual fund document thoroughly before investing. Specific investment needs and other factors have to be taken into account while designing a mutual fund portfolio.

GST rate of 18% applicable for all financial services effective July 1, 2017.

News About ULIP v/s Mutual Funds

  • NJ India receives 50,000 fresh SIPs through its 5,000 partners

    Surat-based financial product distributor NJ India has managed to get 50,000 new SIPs (Systematic Investment Plan) from its SIP Day Campaign organised on 21 February 2018. NJ India has more than 5,000 partners and through them, it was able to clock Rs.14 crore worth of SIPs. The response of the campaign has been overwhelming and the company intends to plan more such campaigns in the future. Though the company had not offered any financial incentives for either its team members or distributors, they still did their best to drive the campaign and this reflects in the numbers of the new SIPs registered.

    Out of the 50,000 SIPs, 70% were registered through the company’s online platform - E-Wealth. Helping the partners understand the significance of technology to progress their business was the idea underlying the campaign. As per an official of NJ India, a remote partner of them in Lucknow had managed to log in 450 SIPs which is an indication of how technology can make a huge difference in the way of doing business.

    26 June 2018

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