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Understanding The Difference Between A ULIP and a SIP

Published On Jan 07, 2022

Once it comes to finances and investments, you'll discover a wide range of options that deliver a host of benefits to socking away. Life policies were some of the most cost-effective ways and save and spend. Nonetheless, as your economic study proceeds, the differences between ULIPs (Unit Linked Insurance Plans) and SIPs (Systematic Investment Plans) may become a source of confusion (Systematic Investment Plans).

Do not really fret if you don't understand what these terms mean. We'll go through the differences between the two and the essentials to make things easier for you. This knowledge will make a new investor or someone who has done some basic research on financial investment feel more at ease.

What's the Difference Between a ULIP and a SIP?

Below are a few differences between A ULIP and a SIP:

1. Types

Type 1 and Type 2 ULIPs are the two most common varieties. A Type 1 ULIP will pay the larger of the sum assured or the fund value if the policyholder dies, whereas a Type 2 ULIP will pay the sum assured. Mutual funds, on the other hand, can be divided into equities, fixed income, liquid, gilt, and hybrid funds.

2. Returns And Risks

Because both ULIPs and SIPs are investment choices that are exposed to market risks, their results are mostly determined by market conditions. Returns also differ depending on the fund type selected. Equity funds have a high level of risk, but they also have a high return potential. Debt or liquid funds, on the other hand, have lower risks but lower returns. In terms of risk and return, hybrid funds fall between equity and debt funds.

Because it also includes insurance coverage, a ULIP usually invests in less risky assets. The goal of ULIP fund managers is to keep negative effects on the invested capital pool to a minimum. As a result, ULIP returns may be lower than those of standard equities or hybrid mutual fund SIPs. ULIPs, on the other hand, are a safer investment alternative. You can predict returns and invest accordingly based on current economic conditions and past ULIP performance.

3. The Benefit Of Life Insurance

ULIPs have an advantage over SIPs because they offer both capital appreciation and life insurance coverage. SIPs do not include life insurance coverage.

4. Tax Benefits


Sections 80C and 10(10D) of the Internal Revenue Code provide tax advantages on the premium paid for the policy as well as the maturity proceeds.


SIP does not offer any tax advantages. However, only the Equity Linked Savings Scheme (ELSS) is exempt up to a maximum of Rs.1.5 lakh.

5. Flexibility


Flexibility in selecting how much of your money should be spent on life insurance and how much should be put into investments.


Flexibility in terms of increasing or decreasing the amount of money invested in the long run.

6. What Should You Put Your Money Into?

After comparing SIP vs ULIP, the next obvious step is to choose which one to invest in. Simply expressed, your decision is based on your financial objectives and plans. ULIPs, on the other hand, are a good solution in terms of technical and financial management. In simple terms, the reason is obvious. First and foremost, you obtain a life insurance policy. There is also the option of earning market-linked returns. You don't receive dual benefits with SIP.

7. Before Choosing Between ULIP And SIP, Consider The Following Factors

One of the most important factors to consider while deciding between ULIP and SIP is your financial situation. SIP is a smart choice if you have a long-term financial objective that requires planning. ULIPs, on the other hand, are the perfect alternative if you want to have insurance coverage in addition to your investment. You should verify the characteristics on which we based our comparison above before deciding between the two.


The bottom line is that with ULIPs, you don't have to acquire two financial products for insurance and investing separately. SIP is a fantastic alternative if you don't think about insurance much or don't mind owning two different financial products. Another advantage of SIP is that it is a good tool for new investors because you may start with a small amount. While we conducted a thorough analysis, the importance of each metric changes from one person to the next. That is to say while deciding between a ULIP and a SIP, a particular investor may place greater emphasis on switch possibilities or lock-in periods. Death and increased benefits, on the other hand, can be an important consideration for some users.

Do read - How to Choose The Right ULIP Plan In 5 Easy Steps?

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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