ULIP vs Mutual Funds: Which is Better for You?

What Are Mutual Funds?

What Is a ULIP?

What Are the Differences Between ULIPs and Mutual Funds ?

Some of the key differences between these two investment options are as follows:


Mutual Funds


Investment objective

These are purely investment alternatives whose main goal is creation of wealth over a period of time.

The primary objective behind ULIPs is offering insurance coverage apart from generating market-based returns.

Lock in period

You are free to redeem your investments as per your needs. However, ELSS is an exception with a lock-in period of 3 years.

You cannot withdraw or redeem your investment before the completion of the lock-in period.


Only ELSS investments come with tax deductions of up to ₹1.5 lakhs under section 80C of the IT Act.

Premium amount paid for an ULIP is eligible for tax deduction under Section 80 C of the Income Tax Act, 1961. The returns of the policy on maturity are tax exempt under Section 10(10D).


Mutual funds come with an expense ratio which covers fund management expenses. Some funds also require you to pay an exit load in case of premature withdrawal.

There are several costs associated with ULIPs, which includes mortality charge, premium allocation charges, fund manager's expenses, etc.


These investment plans have extensive underlying transparency. Investors have easy access to all the fund information, like expenses and asset allocation.

It is a complex financial product having a mix of both investment and insurance. Therefore, investors do not receive regular information on its working, which makes it less transparent.


Returns on mutual funds can be dynamic and vary depending on the type of security.

You receive a fixed return in the form of insurance coverage. Apart from these, market-based returns depend on the underlying securities of the plans.

ULIP vs Mutual Funds - Which Is a Better Investment?

FAQs about Difference Between ULIP and Mutual Funds

What are the types of mutual funds?

Primarily, there are three types of mutual funds, namely debt funds, equity funds and hybrid funds. Debt funds invest a significant portion in debt securities, while equity funds invest a significant portion in equity instruments. Hybrid funds maintain a balanced portfolio by investing in both debt and equity instruments.

Can I withdraw money from ULIP?

Standard ULIPs allow investors to withdraw a portion of the total premiums paid, which is usually less than 10%. However, certain plans may allow you to withdraw more. However, it should be noted that one can only withdraw from a ULIP after the lock-in period gets over.

Are ULIP investments risky?

Although Unit-Linked Insurance Plans (ULIPs) allow investing in a variety of equity and debt instruments, they are considered to be a risky investment alternative due to the built-in investment component. It is ideal to assess you risk appetite before going for an ULIP as the returns would be based on market sentiments.