Difference between ULIP and Mutual Fund

It Is really confusing for many and would like to know the actual fact and difference between ULIP and Mutual Fund.

Let us go through some detail in both ULIP and Mutual Fund. I hope you will get a clear picture for both the forms of investment.

Difference Between ULIP and Mutual Fund

ULIP (Unit Link Investment Plan) and Mutual Fund, both are investment scheme related to stock market.

If I talk about ULIP, it is an insurance cum investment product. It provides both Insurance and Investment in one policy.

If I talk about Mutual Funds , It is a pure investment product.

Both Investments are Market related and subject to market risk applied for both schemes. If the performance of financial market goes up, both the funds will perform well generally. If performance of financial market goes down, It will normally effect in both type of investment.

Both ULIP and Mutual Funds provides various types of fund for investment. One can choose Equity Funds, Debt Funds, Income funds, balance funds etc as per investor’s risk appetite. Investor also have an option to choose one or multiple type of funds in both form of investment. Your returns in both investment are depends upon the level of risk you are taking. Higher the risk may lead higher the returns on your investment.

Investor can choose either lump sum or monthly investment in both products.

Both ULIPS and Mutual Fund are regulating by government authorities. ULIP is regulating in India under IRDA (Insurance Regulating and Development authorities). Mutual Fund is regulating under SEBI (Security and Exchange board of India)

Prime objective of Investment in ULIP to get Insurance and Investment in one product but mutual fund is purely based for investment.

ULIP is good for long term investors where money will be locked for certain period. Mutual fund is suitable for short term or medium term investors, here no locking period applied rather than ELSS product.

In ULIP, Entry load is there 5-40% but with mutual funds very small entry load is there. Most of the fund is having no entry loads.

If you look out in terms of liquidity in ULIP and Mutual Fund, in ULIP minimum 5 years of investment required. You can not liquid your money in locking years. Mutual fund investment is free to liquid your money anytime. Only ELSS MF has 3 years of locking period.

Tax Benefit in ULIP and Mutual Fund:-

If Tax benefit is a concern for you, You should understand properly before invest in any product.

All ULIP investment are qualified for tax benefit under section 80(C) but in Mutual Fund only ELSS are qualified for tax benefit.

Minimum Investment Amount :-

In ULIP, it is determined by the investor and later can be modify under guidelines of the Insurance Company. In Mutual fund, minimum investment are determined by the fund house. If we compare both the products ULIP and Mutual Fund.  Minimum investment required in mutual fund is less than from ULIP plans.

Charges and Expenses :-

Comparatively Charges is very much high in ULIP as no upper limit of expenses determined by the Insurance companies where in Mutual Fund, upper limits set by the regulators.

There is no legal requirement for portfolio disclosure by the insurance companies for the ULIP investment. Mutual fund has to be disclose portfolio quarterly basis.

Maturity Period :-

You can choose ULIP plan from 5-20 years or more. 5 years locking period is applicable where you can not premature or withdraw in this period. Also after maturing the policy you can not stay invested for further years.

In mutual fund, apart from all ELSS product, you can premature your investment any time. There is no maturity or locking period applicable. It is only applicable with ELSS product where locking period is 3 years. After maturing the plan term, you can stay invested for further period.

Return on investment : –

Obviously as an investor you should know where you can get good returns.

Probable return in ULIP is low if we compare with mutual funds. In ULIP mostly there is a guaranteed sum assured value as a life cover or in maturity and they are taking less risk exposure in investment. They need to be sustain with guaranteed benefit.

Potential return on Mutual Fund is higher as their risk exposure is high.


It is important to understand the motive of both the product ULIP and Mutual Fund. The purpose of insurance is give protection to the members of the family in case of death whereas investment helps you build your wealth. So It is not a good idea to invest in ULIPs as this product don’t either give the desired insurance cover or good returns on investment part. Simply you can go with Term insurance plan for insurance cover and for investment you can choose mutual funds where you can expect good returns in long run.

The decision to invest in mutual fund or a ULIP plan depends upon certain factors like the time period of investment, financial goals of the investor and his risk appetite.

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