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ULIP Or SIP? Which Is Better?

Published On Sep 12, 2021 12:00 PM By InsuranceDekho

Unit Linked Insurance Plan (ULIP) is the full version of the Unit Linked Insurance Plan. Ulip plans are unique in that they combine investing and insurance advantages into a single plan. When you invest in a ULIP plan, you get insurance coverage as well as the ability to diversify your investments among equities and bonds. Essentially, it allows you to earn market-linked returns while also taking care of your insurance protection needs. Ulips are an excellent tool to instill investment discipline in addition to long-term wealth creation. You can earn a high return on your investment and put it towards your long-term financial goals. 

Whereas, SIP stands for Systematic Investment Plan in its entire form. SIPs allow you to invest a set amount of money in mutual funds at regular periods. You can start a SIP on a monthly, quarterly, or annual basis. To put it another way, SIP Investments let you create a large corpus over time, and you may begin with as little as Rs.500.

Differences Between ULIPs And SIPs

Below are some of the differences between ULIPs And SIPs:

1. In terms benefits

The most significant difference between ULIPs and SIP plans in terms of benefits is that ULIPs are both an insurance product and a capital growth investment vehicle. In reality, ULIPs provide insurance and investing benefits in one package. In a ULIP plan, a portion of the premium goes toward the insurance policy, while the other half is invested in market-linked assets with the goal of making a profit. SIP, on the other hand, is a pure investment tool in which a certain amount of money is invested in mutual fund schemes each month with the goal of generating capital growth and long-term investment returns.

2. In terms of tax advantages

SIPs often do not provide tax benefits to investors. Only mutual fund equity-linked savings plans (ELSS) offer tax deductions to investors up to Rs.1.5 lakh under Section 80C of the Income Tax Act. On the other hand, under Section 80C and 10(10D) of the Income Tax Act, the policyholder can claim a tax credit on the premium paid up to a maximum of Rs.1.5 lakh as well as the maturity proceeds in ULIP plans.

3. In Terms Of Profits

Returns in both investment alternatives are totally dependent on the fund's market performance. The performance of a ULIP plan is determined by whether the investor invests in an equity, debt, or hybrid fund. This element, on the other hand, can be easily detected in SIP. ULIPs are viewed as a more rewarding investment choice for investors seeking a safe investment alternative with a medium to low-risk appetite. Furthermore, fund managers in the ULIP plan typically invest in low-risk fund options to ensure that the money invested is safe.

4. In Terms Of Fees

ULIP plans are subject to a 1.35 percent fund management charge under IRDA rules. Other charges, such as premium allocation charge, mortality charge, administration charge, and so on, are also applicable to the ULIP plan. SIP, on the other hand, is subject to a 2.5 percent fund management fee.

5. In Terms Of Risk And The Lock-in Time

Because both investing alternatives are market-linked, there is a major risk involved. In terms of return on investment, long-term capital returns are best achieved by investing in ULIPs or SIPs. The ULIP plan has a 5-year lock-in duration, whereas the SIP plan has a 3-year lock-in period.

6. In Terms Of Death Benefit 

This benefit is only available with the ULIP plan. Because ULIP is an insurance product, it provides a death benefit to the policy's beneficiary in the event of the assured person's untimely death within the policy's term. However, because SIP is just an investment instrument, no death benefit is provided to investors.

7. In Terms Of Altering Option

Another distinction between ULIP and SIP plans is this. Investors in ULIP plans have free switching options between funds, making them more flexible. Investors in ULIPs have the option of investing in debt or equity funds or both. SIPs, on either hand, do not allow fund changing, and investors are not allowed to switch products throughout the duration of their investment.


It is extremely likely that any investor has a set amount of money to invest. As a result, carefully determining the best investment option and making an investment with the goal of reaping the largest potential returns makes perfect sense. If you want to invest in a SIP or a ULIP, make sure you understand the differences and select the appropriate investment strategy for your financial goals, risk appetite, and time horizon.

Also read - Know How ULIP Is The Right Investment Option For Long-Term Wealth Creation

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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