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Are ULIPs As Good As Mutual Funds

Updated On Mar 24, 2022

The ULIP (Unit Linked Insurance Plan) is a financial product that combines insurance and investment. As a result, if you own a ULIP, you will profit from both insurance and investing.
You must pay a regular premium for the insurance element of your ULIP if you are a member. A portion of the premium you pay will be invested in financial instruments (a mix of debt and equity) according to your weightage preference. What your investment will be made up of is entirely up to you. Your decision should be guided by your risk tolerance, liquidity needs, and financial objectives.
Mutual funds, on the other hand, are solely investment vehicles. The AMC, or Asset Management Company, combines money from investors (also known as unit holders) in order to invest in financial assets such as stocks, derivatives, and bonds. The AMC, through its competent and knowledgeable fund managers, professionally manages these investments. (For additional information about mutual funds, visit this page.)

Are ULIPs As Good As Mutual Funds

Are ULIPs  As Good As Mutual Funds

Here are some factors to consider before choosing between mutual funds and ULIPs as an investing vehicle.

On The Basis Of Costs

If you choose to invest in a ULIP online, you will save money on administrative costs and fund allocation fees, among other things. The expense rates of Mutual Fund schemes, on the other hand, are a little high, especially for active funds. Furthermore, if you invest in direct plans, you can lower your expenditure ratios.

Both of these financial products have advantages and disadvantages. However, when comparing Direct Mutual Funds to ULIPs, the former appears to be more cost-effective.

In Terms Of Profitability

In the first five years of your ULIPS policy, a large amount of your premium is spent on costs. Over time, the same steadily decreases. So, even in a strong bull market, you'll have to wait around half a decade to break even. As a result, if you want to achieve long-term returns that outperform the market, you need to invest in ULIPs for at least one to two decades.

In the case of Mutual Funds, however, the financial situation is not as convoluted. Since their inception, many active mutual funds have consistently outperformed the market and provided higher returns to their shareholders. Furthermore, if you invest in equities funds through a systematic investment plan (SIP), you will benefit from rupee cost averaging.


Mutual funds offer more freedom than ULIPs when it comes to investing. You can switch from one plan to another within the same fund house or from one fund house to another. ULIPs, on the other hand, only allows you to move your investments from equity to debt or debt to equity within the same insurance company.

As a result, if the fund manager of your ULIP underperforms or resigns from the organization, you should be concerned. You simply cannot switch to a new insurance provider in such a precarious circumstance without first redeeming your existing investments before the maturity period expires. In the case of a Mutual Fund, a similar circumstance does not exist.


We've tried to highlight the benefits of mutual funds and ULIPs in this piece. We've attempted to draw a line-by-line comparison between these two investment products in order to assist you to understand how they work in practice. The concept of integrating insurance and mutual funds into a single package, in general, goes against the grain of financial planning. Financial planning entails purchasing term insurance to protect against life risk, followed by systematic investment plans (SIPs) in equity funds to build long-term wealth. ULIPs are prone to mis-selling because they combine insurance and investing into one financial product. This is because many investors are likely to have a misunderstanding of where insurance begins and where investing ends.

Also read- What Is The Difference Between ULIP And ELSS

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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