ULIPs or Mutual Funds –  Which one to invest in?

A wise investing plan can help you build wealth and protect the financial future of your family. Mutual funds and ULIPs (unit-linked insurance plans) are both popular investment options for those seeking long-term wealth accumulation.

Author:IndiaFirst Life | Date:13 Dec 2022 | Time:10:59:00

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A wise investing plan can help you build wealth and protect the financial future of your family. Mutual funds and ULIPs (unit-linked insurance plans) are both popular investment options for those seeking long-term wealth accumulation. But when it comes to cost-effectiveness, transparency, insurance coverage, and tax advantages, these two financial products frequently compete with one another for a larger portion of your wallet. We are comparing these in order to provide you with a better understanding of these investment options and to allow you to make an educated decision before investing. 

What is a ULIP?

A unique kind of investment vehicle known as a unit-linked insurance plan (ULIP) provides life insurance cover in addition to the advantages of systematic investing and market-linked returns. You can use ULIPs to build money for various long-term objectives, including buying your dream home, funding your child's education, retiring early, and more. A life cover guarantees that your goals are met even in an unanticipated circumstance. 

ULIPs give you the choice to invest your money in a variety of debt, balance or equity funds, depending on your level of risk tolerance. The premiums you pay are deductible from your taxable income under Section 80C, and the returns are tax-free under Section 10(10D) of the Income Tax Act of 1961 only if conditions specified under respective sections are fulfilled. 

ULIPs have triple benefits since they give your family financial stability, capital appreciation, and tax advantages. 

Types of ULIP Plans

Investment Plans

In essence, they are non-participating unit linked plans that give you the opportunity to amass money and make investments for the future while providing complete financial security for your loved ones through life insurance.  Your needs and budget can be taken into account when choosing the sum assured under the Investment plans.  

Your policy, your way! Make the most of your freedom to choose tenure, premium payment method, and assured amount based on your needs. Also enjoy the flexibility to change ULIP’s sum assured through the life of the policy.   

Essentially, these are the benefits they provide for you.: 

1) Funds To Invest - Invest in the funds of your choice (there are several equities, balance, and debt funds to choose from, and you may swap between them at any moment). 

2) Portfolio Strategies (Depending on your preferred style of investing, you can select from the given portfolio strategies to meet your unique financial objectives) 

3) Financial Protection (The nominee receives  cover amount or death benefit i.e the value of the prevailing fund as a lump sum payment upon the death of the policyholder) 

4) Tax Benefits (Under Section 80C of the Income Tax Act of 1961, you can receive tax benefits on life insurance premiums paid),  

5) Rewards (Just keep investing and make required premium payments to receive loyalty additions and wealth boosters as per conditions specified under the product/s).  

6) Fund Switching (Moving your money between other fund options could result in higher returns) 

7) Top-Up Option (Whenever you choose, you can use the top-up service to enhance your investment in the plan; if available) and  

8) Flexible Payment Options (You have the option of paying the premium monthly, semi-annually, annually, or all at once). 

Single Premium Plans   

You don't have to worry about additional premiums because this is a Single Premium policy. Your entire premium is invested in the funds of your choice. It helps you to develop a corpus for your future, you have the option to invest in multiple fund options (equity, debt, and balanced) offering the choice of unlimited fund switches and life coverage.  

Children Plans 

A child plan based on a ULIP can assist you in covering the expense of your Child’s education, and in the event of an unfortunate event, your child will get either a lump sum or ongoing payments, depending on the policy's terms. It also aims to protect your child's future while also providing excellent investment returns. When your policy reaches its maturity date, a planned corpus is also included in this. 

What are Mutual Funds?

An asset management company (AMC) handles the money of multiple investors through a financial instrument known as a mutual fund. The proceeds are then invested in further securities, including bonds, equities, and money market instruments, among others. Your mutual fund scheme's performance is directly correlated with the performance of these underlying securities. Mutual funds are pooled investments that are managed by professionals known as fund managers. 

ULIP vs Mutual Funds

Mutual funds and unit-linked insurance plans are contrasted in the following table: 



Mutual fund 


To create wealth through investing and to avail life insurance coverage. 

They create wealth through investing. 

Regulatory body 

Insurance Regulatory and Development Authority of India (IRDAI) 

Securities and Exchange Board of India (SEBI) 

policy term 


This could be for a Short-term, medium-term, or long-term depending on your goals. 

Lock-in period 

ULIPs have a lock-in period of 5 years 

Lock-in periods are typically absent from open-ended mutual funds. There are a few exceptions, including retirement funds, ELSS funds, and children's funds. 

Tax benefits 



The premiums you pay are deductible from your taxable income under Section 80C, and the returns are tax-free under Section 10(10D) of the Income Tax Act of 1961 only if conditions specified under respective sections are fulfilled.  




Depending on the holding duration, equity funds are subject to LTCG (long-term capital gains) and STCG (short-term capital gains) taxes of 10% and 15% (plus relevant surcharge and cess), respectively. After indexation, the LTCG tax rate for debt mutual funds is 20% (plus any applicable surcharge and cess), whereas the STCG tax is determined by the investor's income tax bracket. Under Section 80C of the IT Act, 1961, equity-linked savings scheme (ELSS) funds are eligible for a tax deduction of up to Rs. 1.5 lac. 


The collected fees for ULIPs include premium allocation fees, fund management fees, administration fees, mortality fees, etc. 

An expense ratio, also known as a professional management fee and operational fee, is incurred when investing in mutual funds. Some mutual funds further impose an exit load or fee for exiting the fund. 

Risk cover 

In ULIPs, beneficiaries are given the insured amount in the event of the policyholder's untimely death. 

The investments are given to the nominee in the case of mutual funds. 

The aforesaid table is for illustration purposes only. Mutual fund investments involve greater risks. Mutual funds do not promise or guarantee minimum returns. 

Which is better? Mutual fund or ULIP?

An individual themselves decides whether to purchase ULIPs or go for mutual funds. They should evaluate their needs before investing in any instrument. The right investment option aligns with an individual’s financial goals, risk profile, and investment duration. For example, if investments must remain liquid, one may want to think about investing in mutual funds rather than ULIPs, which typically have a minimum lock-in term of five years. Not all mutual funds are liquid, and tax-saving mutual funds (ELSS funds) have a lock-in term of three years. However, investing in ULIPs is a better choice than mutual funds if you're wanting to save money on taxes, get insurance, and build wealth. 

In a nutshell, the primary aim of ULIPs is to insure the investor's life, while the primary goal of mutual funds is wealth creation. Choose wisely and happy investing! 

The information provided here is not intended to be, nor does it constitute, a full disclosure of all material facts under the Income-tax Act of 1961. Before investing, investors are urged to thoroughly read the scheme prospectus and seek professional advice on the specific legal, tax, and financial ramifications of doing so. 

Please Note: Income Tax benefits will be made available as per the prevailing income tax laws, subject to fulfilment of conditions stipulated therein. Income Tax laws are subject to change from time to time. IndiaFirst Life Insurance Company Ltd. does not assume responsibility on tax implications mentioned anywhere in documents/mail. To know the tax benefits available to you, please consult your own tax consultant. 


IndiaFirst Life

Headquartered in Mumbai, IndiaFirst Life Insurance Company Limited (IndiaFirst Life), with a paid-up share capital of INR 663 crore, is one of the country's youngest life insurance companies. Our key differentiators are our simple, easy-to-understand products that are fairly-priced and efficiently serviced.We offer a diversified suite of over 46 need-based products & Riders (as of 31st March 2022) catering to varied customer segments, leveraging multiple distribution capabilities and augmenting various investment options. In all, propositions under the categories of Protection, Assured Savings, Wealth, Pension, Health and Group Funds for Employee Liabilities form a complete suite of offerings that help our customers prepare for the certainties of life. Our products are easy to understand and competitively priced with risk management being our core strength.

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