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A sound financial plan involves strategies that can remain advantageous in the long run. In the contemporary era, several retail investors have started investing in investment options like ULIP or Mutual Fund that guarantee securing their wealth for the need of the hour. But there is still one question that never seems to settle- Which is a better option among them? 

Although both these investment options function under the same niche, they are not technically the same. Let us unleash the difference between ULIP and Mutual Fund to declare a clear winner!

What is ULIP?

Unit Linked Insurance Plans (ULIPs) are a recent investment option that offers investment benefits alongside rendering life insurance. They generate returns based on the investment made in different avenues. Depending upon your risk profile, you can receive severe protection and make investments safely in the long run. This type of option is a perfect fit for those who do not mind investing a lump sum.

What is a Mutual Fund?

An affordable investment option, Mutual Fund is an easy means to earn returns. Available for both long-term and short-term investments, Mutual Fund is where the money invested by individuals and institutional investors is clubbed together to invest in stocks, debts, and a lot more. Managed by Fund Managers, this option is fit for all those who are looking for convenient choices to secure their tomorrow. 

Difference Between ULIP and Mutual Fund

The battle of ULIP Plans VS Mutual Funds has been doing the rounds for a long time now. While both the options are highly popular, most retail investors might be looking for a clear winner to invest without a pang of guilt. Here’s how to conclude:

Aim of The Option

Is ULIP better than a mutual fund? Many ways can help you to find out about it but before you do that, you must know the aim of each investment plan so that you are sure about their targets. 

ULIP: Since it provides both life insurance and investment benefits under the same roof, it is fit for making long-term investments. It also helps families to build their wealth over time and gain good returns later. ULIP also promises to protect families and their loved ones when in need. 

Mutual Fund: It is mostly short-term as it does not provide any long-term investment benefits to the families or individuals. There are several kinds of Mutual Fund in the market that focus on insurance products. 

Taxation Benefits

Whenever we speak of ULIP plans VS Mutual Funds, a common question is raised about their taxation benefits. So, which one is best for it? 

ULIP: Since under section 80C, the ULIP is eligible for an income tax deduction. One can claim tax deductions up to Rs.1.5 Lakh per year on their ULIP investment. More so, the amount that is assured and paid to the nominee will be tax-free as mentioned under Section 10 (10D). 

Mutual Fund: Unlike the ULIPs, Mutual Funds do not provide any tax deduction except for investment against ELSS. In any other Mutual Funds scheme, no tax deduction will be provided to families and individuals by any chance. In case you are looking for tax saving, SIP is the best way to invest in ELSS Mutual Fund. 

Risk Cover

While comparing ULIP vs Mutual Fund, the potential for each to cover risks in times of crisis counts massively. This is why analysing both of them properly is highly recommended before you invest in either. 

ULIP: If the policyholder passes away within the term of the policy, ULIP takes charge and helps the family alongside providing them protection. This happens due to the in-built insurance plan that this investment option promises to offer. Thus, it is highly reliable in times of crisis. 

Mutual Fund: Mutual Funds do not provide any risk cover during the time of crisis. To shield your family with a risk cover, one must purchase a separate insurance plan for it. This counts for added investment. Thus, it might not serve convenience to those who are looking for risk coverage.


ULIP VS Mutual Fund returns are another important factor to consider before you invest in either of them. This will enable you to ensure the returns you will receive shortly and whether it suffices your needs. 

ULIP: Since ULIP provides a fixed amount of investment, it does not guarantee any return on investment. Whether the investment makes money or not, ULIP does not provide any return on investment and keeps the sum fixed at all costs. However, long term investment might bring relatively higher returns. 

Mutual Fund: The return on investment in terms of Mutual Fund may vary according to the risk factor. However, investing in equity might help in bringing decent returns in need. Debt investments, on the other hand, might fail to bring returns as good as others. 


Amidst other differences, ULIP Vs Mutual Funds also differ in terms of flexibility. Considering this will help you to evaluate which one can provide you added liberty to make investments safely and rely on the process without a pang of guilt. 

ULIP: This investment plan provides the liberty to make decisions as per your convenience. You can decide freely upon the portion that you want to invest and what you want to include in your life insurance plan. It also provides the freedom to shift from one fund to another according to the preference.

Mutual Fund: There is no flexibility provided by the Mutual Fund as it hardly allows any switching from one fund to another. This is why it renders inconvenience to people in terms of making flexible decisions that act as a barrier between their investment goals. 

When Should You Consider Buying ULIP or Mutual Fund?

Once you’ve decided upon your risk profile and investment goals, you might be considering which one to purchase among both. Well, here’s what’s important to know:

Both investment benefits and life insurance are two different factors altogether. In most cases, not clubbing them is always a wise option. But if you require both, then you should opt for this investment option without a second thought. However, if you are looking for an improvised insurance product, Mutual Fund could be the go-to for you. You must also consider ULIP vs Mutual Fund returns while you consider buying either of them. This will help you to make wise decisions and secure your future properly. 

Is ULIP Better Than a Mutual Fund?

It would be unfair to declare either of them a clear winner as both of them provide completely different benefits and functions as investment options. However, a clear winner can only be decided in terms of your preference, flexibility, return expectations and liquidity. Before you indulge in investing your wealth in either of them, make sure to dig into these facts above to invest in the right place at the right time. Considering ULIP vs Mutual Fund calculator could also help you in many ways. 

Sindu Ramankutty has 10 years of Life Insurance Operations and Customer Service experience. She has worked with two leading private life insurers. She has a PGDBM (General Management) from Narsee Monjee Institue Of Management Studies (NMIMS) Global Access, Licentiate from Insurance Institute of India (III) and ALMI from LOMA.