ULIP vs Mutual Fund: Where Should I Invest

ULIP vs Mutual Fund: Where Should I Invest

People often get confused between mutual funds and Unit Linked Insurance Plans (ULIPs). However, those who frequently engage in the market and bear knowledge of investment, in general, are aware that these two are completely different and offer unique benefits to the investor.

When it comes to mutual funds, the fund manager invests money from different investors in several market-linked funds. It is one of the best ways to gain higher returns and bring diversity to your investment portfolio. On the other hand, ULIPs is primarily an insurance policy that provides the benefits of investments as well. The money is generally investment is equity-oriented funds, debt funds, or a combination of the two.

If you are confused about whether you should invest in mutual funds or ULIPs, we believe we can help. This article explains ULIP vs mutual fund based on the following pointers.

  1. The objective of the policy

ULIP is known to provide dual benefits to its investors. A part of the policy premium is used for life insurance cover, while the remaining amount is used to invest in funds of your choice. If you are looking for a scheme that offers a protection component to your loved ones, ULIP is an ideal choice for you.

When you need to accomplish a certain financial goal, mutual funds are the best to do so. The scheme’s returns are highly dependent on the market conditions and do not have any protection component to it. Therefore, it is advisable to invest in mutual funds to acquire short-term financial goals.

  1. Return on Investments

If you are looking to gain reasonable to higher returns, mutual funds should be your go-to option. Besides, it is easier to accomplish greater financial gains in a short time when you invest in this scheme. However, note that this is dependent on the market conditions at the time of withdrawal.

ULIPs give you the liberty to invest in funds of your choice. Depending on your risk appetite, you can invest in equity or debt funds. If your risk appetite is high, consider equity-oriented funds; where it is best to invest in debt funds if your risk appetite is low. Besides, ULIPs offer the facility of fund switching to make desired changes in your investments. So, you can easily switch from equity to debt funds and vice versa as per the market conditions.

  1. Lock-in Period

ULIP serves well when you stay invested for a longer duration. Hence, they have a lock-in period of five years. During this time, you cannot withdraw any amount from the policy gains. After the lock-in period is over, the insurer allows you to withdraw partially from the scheme. Moreover, if you terminate the plan during the lock-in period, the payout is given only after the completion of the lock-in period.

Mutual funds, on the other hand, come with a year to no lock-in period. However, if you invest in ELSS mutual funds, then the lock-in period is three years.


These are some basic factors used to differential ULIP vs mutual fund. However, the instrument you choose to invest in should depend on your current financial status, your income and expenses, and your future financial goals.

If your focus is on the returns received from the scheme in a shorter duration, mutual funds are your go-to instrument. However, if your concern is wealth creation and protection, ULIP should be your ideal decision.


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