SIP V/S ULIP- Which is a Better Investment Option?
Updated On Aug 07, 2021
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SIP or ULIP is a very common dilemma that is faced by various investors nowadays. The general question that each investor has their mind on is whether they should go for a Systematic Investment Plan or a Unit Linked Insurance Plan-------- and which one is worth it? To understand things better, keep reading!
Meaning of SIP and ULIP
SIP stands for Systematic Investment Plan. Under these plans, the investment is done in mutual funds at a regular time period. An investor can go for a monthly, quarterly or yearly SIP. To state simply, an SIP investment helps you in building a large corpus over a period of time and the starting amount can go as minimum as Rs 500.
On the other hand, ULIP stands for Unit Linked Insurance Plan. These insurance plans are uniquely designed as they provide the benefits of both insurance and investment under a single insurance plan. By making an investment in a ULIP, you receive an insurance plan and also an opportunity to make investments in the stocks and bonds.
SIP V/S ULIP
The key differences between SIP and ULIP plans are explained in the below table:
| Basis |
Systematic Investment Plan (SIP) |
Unit Linked Insurance Plan (ULIP) |
| Type of Plan | This is a pure investment plan, which involves investing a particular amount in a selected mutual fund at regular intervals i.e. weekly, monthly or quarterly. | This plan serves dual objectives i.e. both investment as well as insurance. |
| Tax Benefit | Here, no tax benefit is applicable, except for investment done in ELSS mutual funds that are tax exempted for up to Rs 150000 as per sec 80C of the Income Tax Act. | This insurance plan provides tax deduction of up to Rs 150000 according to sec 80 C of the Income Tax Act. Maturity and death benefit is free from tax as per sec 10(10D) of the Income Tax Act. |
| Flexibility | The capital invested can be either increased or decreased and helps in generating long term returns. | Switching, Top-Up and Premium Redirection facility provides flexibility for investment. |
| Additional Benefits | Here under this plan no applicability of additional benefits. | Applicability of add-on loyalty benefit upon the completion of pre-decided time frame post which additional fund units are issued. |
| Liquidity | Under this plan, complete liquidity is ensured as the capital invested can be redeemed by the investors according to their convenience. | It does not provide liquidity during the first five years because the invested capital cannot be withdrawn or surrendered during this time frame. |
At The End
Any investor would have planned a fixed budget for the purpose of investment in different investment instruments. Therefore, it makes complete sense to carefully draw out a good investment option and make appropriate investments in order to reap high return amounts from the investments. In case you are planning to invest in SIP or ULIP, then ensure that you go through the aforementioned points and select the best option according to your risk appetite, tenure and financial goals.
Must Read: Why is Term Insurance known as a Pure Risk Protection Plan?
How To Choose The Right Investment Option In India?
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.
