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Are ULIPs As Good As Mutual Funds?

A mutual fund is an investment vehicle that allows you to participate in the capital markets on a larger scale. To better comprehend this, consider an equity index mutual fund. If you invest in an index mutual fund, you have a shareholding in all of the stocks that make up the index at any given time, thanks to the fund house. The performance of the equities in the fund basket determines the growth of your money invested in a mutual fund. 

A ULIP, on the other hand, lets you invest in a fund that has an underlying basket of stocks while simultaneously providing life insurance through the same product. In a nutshell, a ULIP is a dual-benefit product that offers both investment and insurance protection.

Comparisons Between ULIPs And Mutual Funds

The following are few comparisons between ULIPs and Mutual Funds:

  • ULIPs Provide Additional Protection

Certain ULIP products on the market include riders or built-in advantages that provide additional protection. These ULIP products are suitable for clients who are saving for a specific need and are concerned that their demands will not be met if they are no longer available in the future. Saving for a child's education is one example. To satisfy these needs, several ULIP policies provide a lump sum insured amount upon the death of the parent. In addition, the firm continues to pay the fund's premiums on behalf of the parent. 

  • Tax-savings

ULIPs qualify for tax deductions under Section 80C of the Internal Revenue Code. Your total taxable income is reduced by the amount you invest in a ULIP. As a result, the amount of money you owe the government in income tax is reduced. Mutual funds, on the other hand, don't necessarily help you save money on taxes. Only ELSS, or Equity-Linked Savings Schemes, provide these tax benefits.

  • Charges

ULIPs and mutual funds may appear to be comparable at first glance, as they both invest in a variety of assets. Both, however, are constructed differently, which explains why the charges differ. A mutual fund simply costs you for the administration of your cash and an exit fee, which is a charge for selling things in the plan before the end of the investment period. ULIPs, on the other hand, impose fees under a variety of headings. There is a premium allocation charge, an administration charge, and finally, management charges. The insurance premium is included in the amount you invest in a ULIP. A mortality charge is a term used to describe this.

ULIP Fund Management Charges, on the other hand, are lower than Mutual Fund Fund Management Charges, at 1.35 percent and 2.5 percent, respectively. Furthermore, the IRDAI, the insurance regulator, stipulates that the total effective charges on ULIPs must not exceed 2.25 percent. This means that the total charges on a ULIP can never be higher than those on a mutual fund.

Charges that are too high go into your profits. As a result, your ULIP returns are likely to be equivalent to or greater than those of mutual funds in the long run.

  • Greater Options

Depending on the risk and return objectives, there are thousands of mutual fund plans to choose from. There are even funds that mirror a stock market index such as the Sensex or Nifty. You won't find this much variety in ULIPs. ULIPs, on the other hand, may offer different alternatives based on who you wish to protect—yourself during retirement, your children, and so on.


There are times in life when a large sum of money is required. Purchase or construction of a home, higher education and marriage of your children, and retirement living are examples of these. You must discover the avenues where your investment would create the maximum returns as per your risk profile, taking into account the rate of inflation.

The stock market has the potential to produce the best returns of all investment options, but it also comes with a high level of risk.

You may also like to read - 

Why You Must Not Avoid Endowment Policies?

Is Purchasing An Endowment Policy Beneficial?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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