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Difference Between ULIPs And Mutual Funds

Updated On Apr 26, 2021

It is always wise to be interested in the financial growth and security of your assets. It helps you in the present as well as in the future. ULIPs and Mutual Funds are both great ways to do this. They help you judiciously save up your hard-earned money. Both of them might seem similar but have distinct differences.

Easy options for investments are always in-demand. However, it is best to verify all factors and features before choosing an investment plan for yourself. Take a look at the difference between the two types of plans.

You May Also Like to Read:- Everything About SIPs vs. ULIPs

Comparison: ULIPs Vs Mutual Funds

The following are a few points of comparisons between ULIPs and Mutual Funds. They will provide better insights into what these plans entail. 



Mutual Funds

Nature of the Plan

It is an investment cum life insurance plan

It is a pure investment plan

Lock-in Period

They feature a lock-in period of 5 years.

Only tax-saving mutual funds i.e. ELSS feature a lock-in period of 3 years

Partial Withdrawals

Allowed after 5 years

Allowed after 3 years in case of ELSS, otherwise anytime

Tax Benefits

ULIPs are subjected to tax deductions of up to Rs. 1.5 Lakh under section 80C of the Income Tax Act. There are also tax exemption on proceeds under section 10(10D) of the Act

Only tax-saving mutual funds qualify for  a tax deduction of up to Rs. 1.5 Lakh under section 80C of the Income Tax Act


There are a variety of riders that can be added to a basic ULIP.

No riders can be added as this is purely an investment plan.

1. Nature of Plan

A ULIP or Unit Linked Insurance Plan provides insurance as well as investment components to all their customers. This is what makes this type of plan unique. On the other hand, a mutual fund is a pure investment plan. There is no life cover or death benefit provided with mutual funds. It is a pure investment plan with no insurance benefit.

2. Lock-In Period

For ULIPs, the lock-in period is 5 years. In case of mutual funds, a lock-in period is imposed only on tax-saving mutual funds like Equity Linked Savings Scheme. In such cases, the lock-in period is of three years only.

3. Partial Withdrawals

Partial withdrawals are a great feature as they let you have portions of your funds as and when you require it. In case of ULIPs, partial withdrawals are allowed anytime after 5 years. If you have a mutual fund, partial withdrawals are allowed anytime. Only for ELSS, they are allowed after 3 years. 

4. Tax Benefit

Like with all insurance plans, ULIPs are also subjected to tax benefits under section 80C of the Income Tax Act of India. The tax benefits are applicable to the premium amount you pay. The upper limit to this benefit stands at Rs. 1.5 Lakhs. There are also tax exemptions on proceeds under section 10(10D) of the Act. For mutual funds, tax benefits are only available on the Equity Linked Savings Scheme plans and other tax-saving mutual funds

5. Riders

Since there is an insurance component to ULIPs, you can add on a rider to the basic ULIP plan. They are available to cover many things including critical or terminal illnesses and disabilities. However, there are no riders available for mutual funds because they are purely investment plans. 

Also Read:- Insights On ULIPs VS Traditional Life Insurance Plans

What is Fund Switching in ULIPs?

Take Away

You must carefully consider the features and advantages of both plans before settling for one. Make sure to evaluate with respect to your personal financial conditions as well as your future goals 

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