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How Are ULIPs Different From SIPs?

Published On Nov 22, 2021

A Unit Linked Insurance Plan (ULIP) is a type of insurance which provides the dual benefits of insurance and investing, unlike ordinary insurance policies. The life insurance component of the premium is set aside. The remaining funds are invested in the investor's preferred investment products.

Depending on his or her risk appetite, investors can invest in equity, debt, balanced, or hybrid funds. Based on his or her investment objectives, the investor can transfer investments from debt to equity and vice versa. Five years is the lock-in term for ULIPs. Under Section 80C of the Income Tax Act, ULIPs, like ELSS, provide tax exemptions up to Rs. 1,50,000.

A Systematic Investment Plan (SIP), allows you to invest a small amount of money in your favorite mutual fund scheme every month. A SIP is a monthly deduction from your bank account that is invested in the mutual fund of your choice.

In contrast to a lump-sum investment, a SIP allows you to spread your money out over time. As a result, you don't need a lot of money to begin investing in mutual funds via SIPs. You are required to set aside a sum at regular intervals when you invest through a SIP, which helps you develop financial discipline over time.

Is ULIP Better Than SIP?

Below are a few comparisons between ULIPs and SIPs:

1. Product Type And Objective

ULIPs are a type of insurance that also serves as a vehicle for investment. As a result, insurance firms are responsible for providing it. Based on their investment objectives and risk tolerances, investors can select their chosen fund type: debt, equity, hybrid, or money market funds. A ULIPmust provides a minimum sum assured of 10 times the premium paid. If the investor is more than 45 years old, this is lowered to seven times.

A systematic investment plan (SIP) allows individuals to invest a set amount in a financial asset on a regular basis, typically in an equity mutual fund.

2. Tax Benefits

Any tax deductions claimed on the premiums paid are reversed if you surrender a ULIP provided before maturity, and you must pay tax appropriately. During the insurance term, the maturity amount is tax-free if the policyholder dies.

The maturity benefits obtained from the plan are added to the investor's taxable income if the premium paid is more than 10% of the minimum sum assured. The investor must pay taxes according to his or her income tax bracket. TDS of 2% is deducted at source if the premiums paid are 10% greater than the minimum sum assured and the gains for a fiscal year exceed Rs. 1 lakh.

A SIP policy's profits are tax-free. This is because profits of up to Rs. 1 lakh are tax-free (investment + capital gains + maturity benefits). However, LTCG over Rs. 1 lakh is subject to a 10% tax rate.

3. Fund Switching Flexibility 

In a ULIP, you can swap or adjust the investment ratio among several funds – debt, equity, or hybrid – at any time. This allows you to tailor your investments to meet your specific investment goals and objectives. If you're young and willing to take risks, equity funds can provide you with better returns. You can move to debt funds to experience stability as you become older and your risk tolerance drops. You can also convert your assets from equities to debt when the market is low and back to equities when the market rises. You may, however, be limited to a set number of free switches each year. You will be cowed if you go over this limit.

SIP gives you a lot of options. If you're hesitant to commit to a long-term investment vehicle such as the Public Provident Fund (PPF) or Unit Linked Insurance Plans (ULIPs), SIP is the perfect solution. These are unrestricted funds, which means you can take them out whenever you choose. In other words, the tenor of SIPs is not predetermined. You can withdraw the entire amount of your investment or just a portion of it without losing any money. Furthermore, the investment amount is adjustable: it can be raised or lowered. However, keep in mind that if you want to build wealth, you'll need a long investing horizon.


SIPs and ULIPs are both viable options for achieving near-term financial goals. However, before deciding between the two, you must assess your present financial situation and investment goals.

You may also like to read - Is ULIP A Better Investment Than Mutual Funds?

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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