Mutual Fund vs ULIP: Where to Invest for Better Returns?

Mutual Fund vs ULIP - Sarsa

‘What is the difference between Mutual Fund and ULIP?’ Many times, while planning for financial goals you might feel confused in deciding between two good investment instruments. While on one side there are Mutual Funds that offer great returns beating the inflation rate, on the other side there are ULIPs, that offer a blend of returns and insurance coverage subject to certain terms and conditions.

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However, starting an investment in either of the two instruments with shallow or incomplete knowledge may prove highly risky for the investor. You may not get the desired investment results as per your future financial goal.

Through this article, we attempt to enable you to make the right investment decisions by presenting a difference between Mutual Fund and ULIP

Mutual Fund vs ULIP - Sarsa


What is Mutual Fund?  

Mutual Funds are one of the favored investment instruments today. They basically refer to a pool of money collected from several investors to invest in securities such as bonds, stocks, money market instruments, and other similar instruments.
Based on the assets in which they invest Mutual Funds are divided int  o Equity Funds, Debt Funds, balanced funds, Growth Funds, Money Market Funds, Income Funds, and Liquid Funds. The reliability of investment in Mutual funds is heightened by the fact that Mutual Funds are managed by seasoned fund Managers.

What is ULIP?

ULIP (Unit Linked Insurance Plan) is an insurance product that offers its customers the dual benefit of life coverage with returns on investment. A part of the premium paid by an investor in a ULIP is used to offer life coverage to the investor while the remaining portion is invested in equity or debt instruments to generate returns.
The funds of a ULIP are invested in bonds, debt instruments, and equity shares based on your risk appetite and selection.

Difference between Mutual Fund and ULIP plan 

While it might be tricky to select between Mutual Funds vs ULIP, we have listed a few differences between Mutual Funds and ULIP Plan to assist you in deciding a suitable investment instrument based on your financial goals.

Mutual Funds


Product Features

Pure investment instrument Insurance with investment.

Tax Benefit

Equity Linked Saving Scheme (ELSS)
mutual funds are eligible for tax
benefit under section 80C of the
Income Tax Act.
For other mutual fund schemes the
applicable tax rate is implemented.
The premium paid and the claim benefit
received are eligible for tax benefit under
section 80C of Income Tax Act and section
10(10D) of the Income Tax Act respectively.

Lock-In Period 

Only ELSS funds have 3 years lock-in.
All other mutual funds are open-ended funds.
ULIPs have a mandatory 5-year
lock-in period.


Barring ELSS funds, Mutual Funds
can be redeemed anytime.
ULIPs can be redeemed only after the
completion of a 5-year lock-in period.

Mutual Fund
vs ULIP Return 

The returns generated from Mutual
funds are higher.
ULIPs, offer a fixed sum assured with
the insurance cover. Hence the returns
are less.

Expenses or Cost

The expense ratio on mutual funds
is low with a cost limit fixed by
In ULIPs, the charges levied are quite high.


Mutual Funds are transparent in
disclosing fees and charges.
ULIPs, offer less transparency in terms
of fees and charges.


Short, medium, and Long Only Long Term

Is ULIP better than MF is a complicated question for most investors. Whether or not you are benefited from ULIP or Mutual Fund depends on some critical factors.

Let us look at the following scenarios:

  1. Are you looking for wealth creation options?
  2. Are you looking for instant liquidity and high returns investment?
  3. Do you have a medium to high-risk appetite?
  4. Are you looking for both long term and short-term investment options?

If your response to any of the above questions is a yes, investment in Mutual Funds is ideal for you. The benefit of rupee cost averaging and compounding interest further enhance the returns if investment in Mutual Funds is done through SIP mode.

If, however, you are looking for a life coverage with some returns and can invest your funds for a long period of time ULIPs are the better option.

We, however, recommend you practice utmost caution while deciding a suitable investment instrument and refrain from any hasty investment.

At any time if you need realistic and professional assistance, feel free to reach out to us, connect with us here.

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