ULIP vs Mutual Fund

by Editor

ULIP vs Mutual Fund

by Editor

by Editor

ULIP vs Mutual Fund, both vie for the same pie of investors who wish to maximize their wealth over a longer duration of time and look for market-linked returns.

Now, the provocative question arises here, ‘where to invest – Mutual Fund or ULIP?’

Well, do not get confused. If you are under the same duress, then you have landed on an appropriate post. This article will help you know, learn and decide – where to invest.

Although, over the past few years, the fortunes of ULIPs and MFs have fluctuated due to market regulations and swings, the LTGC tax on equity investments in the Financial Budget has stirred things again.

So, how do these two financial instruments stack up against one another?

Before deciding which of these products win the race, let us understand what Mutual Fund and ULIP stand for, and what is the difference between them.

ULIP: Are they as alluring as they seem to be?

A ULIP is a combination of both investment and insurance. Unit-linked Insurance Plan is a strategic-unique financial product.

In a ULIP scheme, a portion is invested in various funds depending on the investor’s risk appetite and the other portion is deducted as the mortality charges for offering life cover.

Let us see what the ULIP fund allocation options are:

The funds where you can park your money are equities, bonds, market funds, debts, or hybrid funds. The investor can choose any of these options based on his requirement and preference.

Mutual Funds: What makes them Enticing?

Usually, when you talk about investment, what comes to your mind first? Mutual funds, right?

Why? Because, mutual fund schemes are one of the traditional and common instruments of investment.

But, do you know how mutual funds function?

Well, there are three parties playing a crucial role in mutual funds:

You – the investor investing your money in mutual fund schemes, which run with the help of reliable fund managers.

Fund Managers – These managers accumulate funds from various investors.

Mutual Fund Plans – These are the investment plans from where you, the investor, can expect to reap returns.

There are different types of mutual fund schemes, namely liquid funds, equity funds, money market funds, debt funds, tax-saving funds (ELSS), hybrid funds, etc.

Difference between ULIPs and Mutual Funds:

Comparison ParameterULIPMutual Fund
Product TypeInvestment + InsuranceInvestment only
LiquidityULIPs have a limited liquidity because of the minimum lock-in period of 5 yearsMFs are liquid. Only ELSS schemes are exception due to the lock-in period of 3 years
Tax DeductionsThe investor can avail tax deductions on the premiums paid and money invested under section 80C of the Income Tax Act, 1961.Only Equity-Linked Saving Plans or ELSS is exempted from tax up to Rs. 1.5 Lakh under section 80C of the IT Act 1961.
RidersYou have an option to get a complete and comprehensive protection by adding up riders.No riders available.
TenureDepends on you. However, if you wish to earn good returns on your investment, make it 10 to 15 yearsNo specific tenure.
Lock-in PeriodLock-in period is 5 yearsMany of the MF schemes don’t have any lock-in period, except ELSS that comes with 3 years of lock-in period.
Switching OptionsFlexible switching option is availableSome of the mutual fund offer switching options.
SecurityModerate securityNo security
Fund Management Charges (FMC)FMC is comparatively low, say 1.35 percentFMC is higher, around 2.5 percent

ULIP vs Mutual Fund: Which one is better?

Well, it depends on your needs, requirements, risk appetite, dependent family members, etc.

You just have to ask yourself the below-mentioned questions:

  1. What is your risk taking capability – high, medium, or low?
  2. Is there any financially dependent family member?
  3. How many dependents are there and how long will they take to be financially independent?
  4. What is your objective of investment – tax savings, wish to save money, or seek financial assistance for your family?
  5. What should be the term of your investment – long-term or short-term?

To cut it short:

Go for ULIPs:

  • If you are looking for long-term investment scheme.
  • If you have high, medium or low risk appetite.
  • If you want both, investment and insurance together to protect your family financially in case of unforeseen events.

Choose Mutual Funds:

  • If you want returns in medium or short-term
  • If you have high, medium, or low risk appetite
  • If you want liquidity in your investments (except ELSS)
  • If you already have a term insurance plan to safeguard your family members financially

Now that you have known so much about ULIP and Mutual Funds let us go through another integral part of the comparison, ULIP vs. Mutual Fund returns:

 3-Year Returns in Percentage5-year Returns in Percentage
CategoryMutual Funds ULIPsMutual FundsULIPs
Ultra-short Bond7.386.59NANA
Short-term Bond7.306.6NANA
Conservative Allocation7.757.379.749.21
Small and Mid-cap Equities15.8916.8126.9324.43
Large-cap Equities9.589.5715.3115.18

Our Take!

While both the options have their own pros and cons, Mutual Funds are backed by many investment “gurus”. But, is it right to put all your eggs in a single basket?

In order to make a sound and best investment, it is important to evaluate each and every aspect of a plan with a fine toothed comb.

By now, it is clear that comparing ULIP vs Mutual Fund is just like making comparison between chalk and cheese. Although, both are investment instruments; both serve different purposes. ULIP is the best option for people with long-term plans of wealth maximization and creation along with insurance. On the other hand, mutual funds are purely investment instrument, which gives higher returns.

As the purposes and benefits of both ULIP and MF are different, it is not wise to measure them by the same tape. If you are still confused between both these investment schemes, pick the one that suits your needs, financial goals and priorities.

Advantages of Mutual Funds Investment

Maximum Returns

Mutual Funds come with an assurance of high returns. As these funds deal both in equity and hybrid funds, there is always a potential of higher returns. Mostly, investors looking for medium or short term investment avenues invest in mutual funds.

Performance Track Record

Mutual funds are available for investment purpose since a pretty long time, which makes it easier for the investors to track the market trends. Long history of track records for a particular scheme allows the investors to make right decisions.


Mutual funds have great liquidity. One can invest and exit at any point of time, except for the ELSS funds as they have a lock-in period of 3 years).

Advantages of ULIP Investment

Life Cover

ULIPs come with life cover feature which covers the life of the insured against the financial risk of an untimely death. There is a death benefit sum assured which payable to the nominee is appointed by the policyholder. In case there is a rider attached to the ULIP, the beneficiary will receive the benefit of the rider, too. The death benefit is generally the higher of fund value or the sum assured.

Tax Savings

Premium amount paid towards ULIP as well as the payout given to the nominee is tax-free u/s 80C and 10(10D) of the Income Tax Act, 1961.

Access to top-ups

ULIP allows the policyholders to enhance their base plan coverage & investment funds. Through top-ups, they can make a one-time lump sum investment that you need to pay over & above your premium amount. It’s an optional feature and you can avail this facility anytime during your policy tenure.

ULIPs v/s Mutual Funds

The illustration given below will help one get a better idea about how ULIP and Mutual Funds work when it comes to returns & cost structure. The below-enlisted figures are meant for 25-year old male investing INR 50,000 for tenure of 20 years. The rate of return has been assumed at 8% market growth for ULIP.

Number of YearsMutual Fund @ 1.5%Mutual Fund @ 2.25%ULIP (Aviva I-growth)
01INR 53,190INR 52,785INR 49,002
02INR 1,10,584INR 1,09,725INR 1,01,202
03INR 1,71,639INR 1,69,837INR 1,56,814
04INR 2,36,589INR 2,33,297INR 2,16,064
05INR 3,05,684INR 3,00,291INR 2,79,791
06INR 3,79,186INR 3,71,018INR 3,49,835
07INR 4,57,378INR 4,45,683INR 4,24,463
08INR 5,40,559INR 5,24,508INR 5,03,977
09INR 6,29,047INR 6,07,723INR 5,88,581
10INR 7,23,180INR 6,95,573INR 6,78,576
11INR 8,23,319INR 7,88,316INR 7,74,305
12INR 9,29,847INR 8,86,226INR 8,76,135
13INR 1,04,3171INR 9,89,588INR 9,84,453
14INR 1163725INR 10,98,709INR 1,099,674
15INR 12,91,971INR 12,13,907INR 1,222,237
16INR 14,28,399INR 13,35,521INR 1,352,610
17INR 15,73,530INR 14,63,910INR 1,491,290
18INR 17,27,922INR 15,99,450INR 1,687,972
19INR 18,92,163INR 17,42,539INR 1,903,464
20INR 20,66,883INR 18,93,598INR 2,139,564

From the aforementioned illustration, it’s clear that ULIPs yield much better returns than Mutual funds in the long run.

For better & concrete understanding, here is a further look into collected data of TATA, HDFC and ICICI that cover both mutual fund as well as ULIP offerings.


CategoryTATA AIA ULIPsTATA Mutual Funds
Name of the Fund3-yr Returns5-yr ReturnsName of the Fund3-yr Returns5-yr Returns
Mid CapWhole Life Mid Cap Equity Fund16.77%25.91Tata Large Cap Fund9.4315.06
Multi CapEquity Fund8.3113.70Tata Equity P/E Fund16.4023.05
Large CapLarge Cap Equity Fund8.8015.03HDFC Top 200 Fund10.1515.82


CategoryHDFC ULIPsHDFC Mutual Funds
Name of the Fund3-yr Returns5-yr ReturnsName of the Fund3-yr Returns5-yr Returns
Mid CapOpportunities Fund16.3119.82HDFC Mid-cap Opportunities Fund16.3525.82
Multi CapDiversified Equity Fund14.04N/AHDFC Capital Builder Fund14.2120.73
Large CapLarge Cap Fund7.4812.44HDFC Top 200 Fund10.1515.82


CategoryICICI ULIPsICICI Mutual Funds
Name of the Fund3-yr Returns5-yr ReturnsName of the Fund3-yr Returns5-yr Returns
Mid CapNANANAICICI Prudential Focused Bluechip Equity Fund11.1817.34
Multi CapMulti Cap Growth Fund11.5917.01ICICI Prudential Multicap Fund12.1618.48
Large CapBluechip Fund8.8113.83HDFC Top 200 Fund10.1515.82

According to this data, it’s been found that mutual funds offer much better returns as compared to
ULIPs in the same category. However, it’s important to realize that it may not be the case for all of the given times.

Leave a Reply

Your email address will not be published. Required fields are marked *