Mutual Funds Vs ULIP: Where to Invest? 2024

Mutual Funds Vs ULIP

Investments being an inevitable ground for toil for people of young age gives ample choices and scopes for individual and community expansions.

Something that makes it all the more enticing is the value you get of your hard-earned money.

Mutual funds are an age-old method of multiplying your corpus safely and with assured mediums of return. ULIP on the other hand goes close to that of mutual funds but varies a little in precise spheres.

ULIPs are known to perform dual activities of securing life covers along with providing returns to the Investors which is not in the case of mutual funds.

Here we would delve deeper into their individual behavior of managing money and eventually aiding in the decision-making of an individual.

What is a Mutual Fund?

Mutual Funds are a way of accruing money from several investors who are willing to invest on security purchases like stocks, gold, certificates, bonds, etc. The gains earned through these dealings are allotted to the investors individually.

The mutual funds portfolio is managed through professional fund managers. They are responsible for asserting the assets into well performing divisions for gaining higher returns.

Merits of Mutual Fund

Professional Assistance in Portfolio Management

Paying a low expense ratio for professional assistance in maintaining and checking the aspect of asset allocation is a very good upscale to the mutual funds operations.

Diversification is the Boon Companion

Mutual funds never work by allocating all the pooled resources into a single security. Instead it diversifies the portfolio by investing in several bonds and securities. This cuts down the chances of incurring losses by the poor performance of one or few security positions.

Redemption and Withdrawal

Mutual Fund offers the facility of withdrawing or redeeming your accumulated units into your trading account just with a few clicks and verification. Post completion of the lock-in period, redemption becomes free of cost and mostly comes with no exit loads.

Varied Scores on Risk Boards

Depending on your risk appetite or tolerance potential, you can choose the best mutual fund scheme for meeting your financial goals. When equity funds operate the best with a prolonged time horizon, they can fetch you handsome returns but with the higher risk involved.

Debt and hybrid funds are known to yield lower returns as compared to equity funds but are less prone to risk factors of the market.

What is ULIP?

ULIP or the Unit Linked Insurance Plans are a new age financial creation. It operates as an insurance plan with the ability to unleash returns on the corpus through investing it in various tools. The returns earned from these plans are fixed and not hindered by any market movements or external resources.

The ULIPs pool the monetary resources into debts, equity, etc. They are well acknowledged for getting a life cover for the investor while making their wealth through constant return accumulation.

Merits of ULIP

Security For Life

ULIPs offer huge scope for serving your life through the life cover plans under it. It can seamlessly leave you with an amount forty times as big as the initial principal of your investment plan.

Goal Oriented Planning

Empowered by goals that are dreamt by you to achieve, the ULIPs perform in an exemplary way to meet the ends of your requirements. The money so pooled by you will be turned to your good in attaining the aspirations like child’s education, new home, car, etc.

Liberty of Choosing the Befitting Investment Plan

ULIPs offer you a platter of schemes under the functionality of two dominant heads – the equity and debt funds. There also exists a third type called the balanced fund being a meld of both debt and equity funds.

Scaling your risk tolerance and financial goals you have complete liberty of opting for one the most befitting. You can alter your chosen funds between debt and equity by a facility called switching. A number of switches are enjoyed free of cost annually.

Benefits of Taxation Brackets

ULIPs help the investors save on taxes up to an amount of ₹1.5 lakhs yearly under the income tax act 1961, section 80C.

Mutual Funds Vs. ULIP

Mutual funds and ULIPs differ the most distinctively on the grounds of their services only. When the former takes care of the short, mid and long term financial goals, the latter secures the life of the investor while fetching them regular cash inflow for meeting their monetary requirements.

Other than this, there are some other prominent grounds of distinction listed below.

Rate of Returns

ULIPs would surely fetch you a sum of returns on your accumulated corpus post-execution of the fixed period. These returns do not get hampered by any market factors and are delivered regularly.

The rate of returns earned through Mutual funds would depend mostly on the market movements. The magnitude of your plan’s performance would decide how much returns get accrued into your funds.

Lock-in Period

Being mostly from the genre of insurance policies, the ULIPs offer a fixed term of lock in period, prior to which redemption is prohibited. Also the lock-in period might push up to three to five years depending on the company’s regulations.

For mutual funds, the lock-in period varies amongst the various types. If you opt for an equity mutual fund the lock-in period might range from 3-5 years. Whereas few funds also offer a negligible lock-in period of a year only.

Saving on Taxations bites

Backed by the legal privilege of the Income Tax Act 1961, the section 80C under it renders a facility of saving upto ₹1.5 lakhs of tax annually under ULIP plans.

Incase of mutual funds, except for Investment plans under ELSS (Equity Linked Savings Schemes) no such mutual fund plans can save you taxes. Sometimes the redemptions may even come with taxation bites under the statutes of tax policies.

Expense Ratio

ULIPs may encourage better management of your portfolio with higher expense ratios tagged on it.

For mutual funds, the SEBI has levied a universal expense ratio for management and regulating the investment portfolio to be 1.05% for all plans. This keeps the expense of professional assistance curbed to justifiable accounts and costs.

Risk Associated

The ULIPs are products of insurance covers. So they are entitled to zero risk attached to their functionality. Moreover on account of the death of the policyholder, the accumulated sum would be surpassed to the members of the family.

Mutual funds are prone to market volatility. This alone induces ample risk to the investment plans. Though vesting your corpus on a successful and well performing fund house over a longer time horizon cuts down the chances of incurring hefty losses.


In spite of acknowledging their variability in actions, both the mutual funds and ULIP can be used as a mode of investment by an individual simultaneously.

For attaining your short and long-term goals, you can surely fabricate your portfolio befitting the grounds of services relished. Gauging your financial aspirations primarily can help you immensely in deciding on this aspect.

Also you need to be thorough with their mode of functionality and have a diligent study before delving into any investment schemes.

Pooja Shah

Pooja Shah is a Content Writer at Financesage. It is a blog where I cover financial tips related website which is working towards investors to take better financial decisions and make the best choices while buying financial things and for better financial life.