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Understanding The Difference Between ULIPs And SIP

Updated On Dec 01, 2021

Two things that successful investors excel at are:

  • They begin by identifying investment vehicles that offer fast and secure returns.
  • Second, they set aside some of their earnings to invest in order to achieve their short- and long-term financial objectives.

ULIPs (Unit Linked Insurance Plans) and SIPs (Systematic Investment Plans) are two examples of financial tools that can assist you in achieving your short and long-term financial goals without having to go from pillar to post.

Only one issue: which is a better investing option: ULIPs or SIPs? Should you compare and purchase the best SIPs or invest in ULIPs that are the most popular?

So, we'll make it simple for you in this article. Simply set up a few minutes to read this article and determine whether ULIPs or SIPs are the best investing option.

Understanding The Difference Between ULIPs And SIP

Below are a few differences between ULIPs and SIPs:

  • Instrument Type

The most significant distinction between SIPs and ULIPs is that ULIPs are insurance products that also serve as capital appreciation investment vehicles. ULIPs, in reality, provide both life insurance and capital investment. This means that a portion of the ULIP premium is invested in mutual funds, while the rest is used to provide live coverage to the policyholder. SIP, on the other hand, is solely an investment product that does not provide investors with any insurance coverage.

  • Tax Benefits

In most cases, SIPs do not provide tax advantages to investors. However, the ELSS (Equity Linked Savings Scheme) is the only mutual fund choice that is tax-free for investors. ULIPs, on the other hand, allows policyholders to save up to INR 1.5 lakh in taxes when they pay their premiums.

  • Investment Mix

SIPs are a riskier investment option for investors because they are strictly an investing instrument. An investor's portfolio must typically be exposed to a bigger risk in order to achieve higher profits. In contrast, because they are largely insurance products, ULIPs are thought to be a safer investment instrument. Furthermore, fund managers generally avoid exposing investments to larger risks in order to protect the capital invested.

  • Switching Option

Another distinction between ULIPs and SIPs is that ULIPs provide free switching possibilities, allowing investors to be more flexible with their investments. An investor can invest in either equity or debt funds, or a combination of the two. Furthermore, one can choose to swap between the two fund options at any time. SIPs, on the other hand, lack this functionality, and investors are not permitted to swap funds throughout the course of their investment.

  • Benefit In Case Of Death

Because a SIP is merely an investment vehicle, it does not provide any sort of death benefit. ULIPs, on the other hand, are typically insurance policies that provide death benefits in the event of the policyholder's death within the policy's term.

  • Lock-in Period

SIPs typically have a three-year lock-in duration, while ULIPs often have a five-year lock-in period. Because of rupee-cost averaging and compounding, ULIPs have a longer lock-in period, which provides higher returns for investors. Remember that financial experts and gurus advise investors to keep their money in the market for a longer period of time in order to maximize their returns.

  • Fund Management Charges

SIP charges are higher, at 2.5 percent. There are also recurring charges, exit load charges, and entry load charges to consider. ULIPs, on the other hand, have a fund management fee of only 1.35 percent, making them an excellent investment option for those on a tight budget.


It's probable that the average middle-class investor has a limited investment budget. As a result, it makes sense to carefully research the greatest financial avenues and invest with the goal of maximizing profits. When all of the benefits of investments are considered, ULIPs always win out over SIPs. ULIPs could be the best weapon in your investing inventory if you're trying to invest for the long term in order to create better returns, take advantage of tax benefits, and acquire full life insurance.

Also read: 

How To Buy ULIPs Plans Online 2021?

Why Should One Choose ULIP Over SIP?

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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