ULIP vs Mutual Fund: Comparison, Charges, Returns & Tax Benefits

By Okbima 07 Dec 2023 215
ULIP vs Mutual Fund


If you want to know which investment is better ULIP vs Mutual Fund? Selecting the right investment option for your financial future is very important. ULIP or Mutual Funds are two of the most efficient and effective investment options available on the market if you want to build good wealth in the long term.


What is a Mutual Fund?

A mutual fund is a financial investment option that collects money from multiple investors to purchase a diversified portfolio of securities, such as stocks, bonds, and money market investments. Managed by professional fund managers, mutual funds offer individuals the opportunity to access a diversified portfolio without the need for extensive knowledge or experience in investing. 

Mutual funds allow investors to buy and sell shares at the fund's net asset value (NAV), which is calculated by dividing the total value of the fund's assets by the number of shares outstanding. This provides investors with liquidity and easy access to their investments.


What is a ULIP plan?

A ULIP plan, also known as a Unit Linked Insurance Plan, is a comprehensive financial product that combines the benefits of life insurance and investment. It is a unique insurance product that not only provides financial security to the policyholder's family in case of an unfortunate event but also offers opportunities for wealth creation and capital appreciation. 

Under a ULIP plan, a portion of the premium paid by the policyholder is allocated towards offering life cover, while the remaining amount is invested in various types of funds such as equity, debt, or a combination of both, depending on the individual's risk appetite.


Charges Between the ULIP vs Mutual Fund

ULIP (Unit Linked Insurance Plan) and Mutual Funds are two popular investment options in India. While they both offer opportunities for investment and wealth creation, there are some key differences between the charges in ULIP vs Mutual Funds.

  1. Initial Charges: ULIPs generally have higher initial charges compared to Mutual Funds. These charges include allocation charges, which are deducted upfront from the premium before the units are allocated. On the other hand, Mutual Funds usually have no or minimal upfront charges.

  2. Premium Allocation Charges: ULIPs also have premium allocation charges, which are deducted from the premium paid by the investor. These charges can be relatively high in the initial years and gradually decrease over time. This can impact the overall returns of the ULIP in the early stages of investment. Mutual Funds do not have premium allocation charges.

  3. Fund Management Charges: Both ULIPs and Mutual Funds charge fund management fees. In the case of ULIPs, these charges are usually higher compared to Mutual Funds. Mutual funds charge lower fund management fees as they typically focus solely on investment management.

  4. Mortality Charges: ULIPs include an insurance component, which provides coverage in case of the death of the policyholder. Mortality charges are deducted to cover the risk associated with this life insurance coverage. Mutual Funds do not have mortality charges as they do not offer life insurance benefits.

  5. Surrender Charges: ULIPs may have surrender charges if the policyholder exits the plan before a specified period, known as the lock-in period. The surrender charges are usually calculated as a percentage of the fund value and reduced over time. Mutual Funds do not have surrender charges as they can be redeemed at any time without any penalties.

  6. Switching Charges: ULIPs offer the option to switch between different funds within the policy. However, every switch may incur switching charges, which can impact the overall returns. Mutual Funds, on the other hand, allow investors to switch between various schemes without any charges in most cases.


Returns Between the ULIP vs Mutual Fund

ULIPs are a good option for investors who are looking for a long-term investment with some insurance protection. However, if you are primarily concerned with generating high returns, then mutual funds are a better option. Below, we have mentioned the returns between the ULIP vs Mutual Fund.



1-Year Return

3-Year Return

5-Year Return


ULIP (Equity)




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Mutual Fund (Equity)




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ULIP (Debt)




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Mutual Fund (Debt)




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Tax Benefits of ULIP vs Mutual Fund

ULIPs offer more attractive tax benefits than mutual funds. This is because ULIPs are considered to be insurance products, which means that they are exempt from taxes under Section 10(10D) of the Income Tax Act. Mutual funds, on the other hand, are considered to be investment products, which means that they are taxable as capital gains.




Mutual Fund

Tax deduction on premiums

Up to Rs. 1.5 lakh under Section 80C

Only ELSS funds offer tax deductions under Section 80C

Tax on maturity proceeds

Exempt under Section 10(10D)

Taxable as capital gains at 10% or 20%

Tax on death benefit




Difference Between the ULIP vs Mutual Fund

ULIPs and mutual funds have different features and benefits. ULIPs offer tax benefits and insurance protection, while mutual funds offer a wider range of investment options and potentially higher returns. The best choice for you will depend on your individual circumstances and investment goals.




Mutual Fund

Tax deduction on premiums

Up to Rs. 1.5 lakh under Section 80C

Only ELSS funds offer tax deductions under Section 80C

Investment options

Limited to equity and debt funds

Wide range of options, including equity, debt, hybrid, and liquid funds

Lock-in period

Typically 5-7 years

No lock-in period for most funds


Higher charges, including premium allocation charges, policy administration charges, and fund management charges

Lower charges, typically only fund management charges


Generally lower returns than mutual funds

Generally higher returns than ULIPs


Lower risk than mutual funds

Higher risk than ULIPs


ULIP vs Mutual Fund: An Overview


  1. Investment: ULIP is a combination of insurance and investment, where a portion of the premium paid goes towards providing life insurance coverage, while the remaining amount is invested in various funds. On the other hand, mutual funds are pure investment instruments that collect money from multiple investors and invest in a diversified portfolio of assets.

  2. Insurance Option: ULIPs have an insurance option that provides a life cover to the policyholder. In case of the policyholder's demise, the insurance company pays the sum assured to the nominee/beneficiary. Mutual funds, however, do not offer any life insurance coverage.

  3. Flexibility: ULIPs generally offer more flexibility compared to mutual funds. With ULIPs, the policyholder can switch between different investment options (equity, debt, hybrid) based on their risk appetite and investment goals. Additionally, ULIPs offer the option to increase the sum assured over time. Mutual funds, on the other hand, do not provide such flexibility. The investor can only redeem or switch between different mutual fund schemes.

  4. Charges: ULIPs tend to have higher charges and costs compared to mutual funds. ULIPs often include charges such as premium allocation charges, policy administration charges, fund management charges, and mortality charges. Mutual funds, however, have relatively lower charges and fees.

  5. Tax Benefits: ULIPs offer tax benefits under Section 80C of the Income Tax Act, where the premium paid is eligible for a deduction up to a certain limit. On maturity or in the event of the policyholder's demise, the proceeds from the ULIP are generally tax-free under Section 10(10D). Mutual funds also offer tax benefits on specific schemes (such as ELSS) under Section 80C, but the gains made from the sale of units are subject to capital gains tax.

  6. Returns: While both ULIPs and mutual funds are market-linked investments and offer the potential for higher returns compared to traditional savings options, the returns can vary. Mutual funds might focus solely on generating higher returns, while ULIPs also factor in the insurance component, leading to a potential impact on fund performance.


Confused Which Investment is Better? Ask Our Expert


Factors to Check Before Buying the ULIP vs Mutual Fund

There are some factors that you should look at before making a decision to make an investment between ULIP vs Mutual Fund. Below we have mentioned some of the common factors.

• Investment objective: Determine your investment objective and long-term financial goals. ULIPs primarily focus on providing insurance coverage along with investment, while mutual funds are focused solely on generating investment returns. 

• Risk tolerance: Identify your risk tolerance. ULIPs carry a higher risk due to market fluctuations and the possibility of low returns during the initial years, whereas mutual funds offer a range of options with varying risk profiles.

• Time period: Consider your investment time period. If you have a long-term investment time period, such as 10 years or more, both ULIPs and mutual funds can provide substantial returns. However, if you have a shorter time period, mutual funds may be more suitable as ULIPs have lock-in periods.

• Flexibility: Look for the flexibility of the investment. ULIPs offer flexibility in terms of switching between fund options and premium payment terms. On the other hand, mutual funds allow easy entry and exit, with no lock-in periods.

• Costs and charges: Compare the costs and charges involved in both ULIPs and mutual funds. ULIPs typically have higher charges, including mortality charges, administration charges, and fund management charges. Mutual funds have lower costs, primarily consisting of expense ratios.

• Insurance coverage: Consider the need for insurance coverage. ULIPs provide life insurance coverage along with investment, which can be beneficial for individuals looking for both investment and protection. Mutual funds do not provide insurance coverage.


ULIP vs Mutual Fund: Which is Better?

The choice between the ULIP vs Mutual funds depends on individual financial goals and risk tolerance. ULIPs combine investments with insurance, offering both investment benefits and life cover. However, they often come with higher charges and complexities. 

On the other hand, mutual funds solely focus on investment and are managed by professional fund managers. They offer a wide range of investment options and are known for their flexibility and liquidity. While ULIPs provide the advantage of insurance coverage, mutual funds may generate higher returns due to lower charges and higher investment flexibility. 

Ultimately, it is important to carefully identify your financial objectives and consult with our expert to make an informed decision about which option is better suited to your individual needs.



In conclusion, making a decision between the ULIP vs Mutual Fund is not easy. Because both ULIPs (Unit Linked Insurance Plans) and mutual funds are investment options that offer benefits and drawbacks.

ULIPs provide the dual benefits of insurance and investment, making them suitable for individuals seeking financial protection along with wealth creation. On the other hand, mutual funds provide greater flexibility and control over investment decisions, allowing investors to choose from a wide range of schemes based on their risk appetite and financial goals.

While ULIPs may have higher charges and longer lock-in periods, mutual funds allow easier liquidity. Ultimately, the choice between ULIP and Mutual Fund depends on an individual's specific needs and preferences.



ULIPs offer tax benefits under Section 80C for premiums paid and tax-free withdrawals under Section 10(10D). These features make ULIPs an attractive tax-saving investment option.

The expense ratio in mutual funds represents the percentage of total assets used for fund management and operating costs. Lower ratios are favorable as they indicate reduced fees for investors.

The right time to invest in mutual funds depends on individual goals and market conditions. A diversified approach and a long-term perspective are generally advisable, regardless of market fluctuations.

Mutual funds don't have a fixed investment period. Investors can choose short, medium, or long-term plans based on their financial goals. Flexibility is a key feature of mutual fund investments.

Both ULIPs and mutual funds offer flexibility, but ULIPs combine investment and insurance. Mutual funds provide pure investment flexibility. The choice depends on individual preferences and financial goals.

No, ULIP (Unit Linked Insurance Plan) is not a mutual fund. It combines investment and insurance, offering both life coverage and the opportunity to invest in various funds.

ULIPs offer life insurance along with investment, while mutual funds focus solely on investment. ULIPs have insurance costs, and mutual funds have no insurance component, making each suitable for different financial objectives.

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