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Difference between ULIPs and FD

Updated On Jul 25, 2021

Many prefer to invest their money in fixed deposits rather than savings accounts as it offers a better interest rate. However, ever since the repo rate cut declared by Reserve Bank of India (RBI), the interest rates on FD has taken a stroll across all the banks in India. Therefore, people are now looking for a substitute that offers similar or better rate of interest. One of the most sought after option is ULIP. Let us study in detail regarding the difference between ULIP and FD.

What is the Meaning of Unit Linked Insurance Plan or ULIP?

ULIP is a type of life insurance plan that offers maturity benefits to the policyholder. A portion of premiums paid by you is invested in debt or equity funds of your preference. The maturity amount comprises the returns earned from the investment. Read ahead to know if ULIP is a better option as compared to FD.

How is ULIP a Better Choice than FD?

A ULIP offers the investors with better versatility and more features in comparison to FDs. Below are a few reasons why you should consider investing in ULIP:

  • Offers Life Insurance

One of the most significant advantages of ULIP as compared to FD is that they provide life insurance. By purchasing a ULIP plan your family members are offered death benefit in case of your unfortunate demise. Thus, ensuring that your loved ones are taken care of even in your absence. An ULIP is better because it offers dual benefits i.e both life insurance as well as good returns.

  • Tax Saving

The interest rates earned by an individual on Fixed deposits or FD is taxable. However, purchasing a ULIP plan can be helpful to you in saving taxes. The premiums paid by you towards the ULIP plan are eligible for tax deductions. Additionally, the maturity sum of ULIP is also exempted from tax. Therefore, ULIPs act as a great tax saving instrument.

  • Flexibility

ULIP plans are a very flexible option. To take complete benefit of the prevalent market situations, you can switch between equity and debt instruments. Hence, by investing in ULIPs you stand a better opportunity of earning better returns. However, the fixed deposits function at a fixed interest rate and thus returns are generally the same.

ULIP V/S Fixed Deposit

The key differences between ULIP and FD are mentioned in the table below:


Fixed Deposit

The returns vary as per the prevalent market situation.

A fixed interest rate is earned by investing in FD.

ULIP offers life cover alongside providing good returns.

No life cover offered.

ULIP plans related to debt are likely to get you more returns as the rate of bonds go up.

Interest rates on Fixed deposit can go down due to inflation.

Tax deduction is available on both premium paid as well as maturity amount.

Tax exemption can be availed only of the investment, returns are taxable.


ULIPs in comparison to Fixed Deposits are a better investment tool. The Unit Linked Insurance Plans (ULIPs) are extremely beneficial for an individual who is looking forward to earning higher returns on their savings, wants a life cover and to enjoy tax benefits all in a single instrument. Also, at the time of buying a ULIP plan, make sure to carefully read all the terms and conditions and go through policy features carefully.

Also read 

Reasons Why ULIPs Are Secured Long Run Investment

Difference Between Money Back Plans and ULIPs

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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