Personal Development

ULIP vs. SIP: Which is a Better Investment Option?

ULIP vs. SIP are the financial instruments that help you address various other needs. For example, ULIP is the ideal option for the long-term investment plan, and it will help you in health creation. On the other hand, SIPs are the best investment option for all.

As an investor, you might have short-term and long-term financial plans, where short-term investment might help you with home renovation, family vacation, etc. Long-term helps you build a corpus for education, retirement, and other major expenses.

There are a variety of funds that help you in your ideal investment. However, before you start with anything, you should know how it works and the pros and cons.

Therefore, it is better to spend your time understanding more of your mutual funds.

So, let us talk about ULIPs and SIP and help you know which one will work better for you!

Advantages of ULIP vs. SIP

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  • Triple Benefit

ULIPs are the insurance cum investment products, where a certain portion of the premium goes into providing the life cover. In contrast, another part is invested in building wealth and earning good returns. It is considered to be best for long-term investment.

It acts as the upper hand to you. How? If something happens to you during the policy period, the insurance company will pay the sum assured and the accrued benefits as a death benefit of your family.

  • Choosing the class of asset

ULIPs give you the benefit of choosing the preferred asset class based on your risk appetite. If you are an impatient and aggressive investor, you can go with equities. Whereas if you are moderate, you can choose a debt fund.

The option of switching between funds is also available. When you invest in ULIPs, the insurance company gives you the opportunity of switching funds freely.

This means if you want to change your financial goals, you can also switch your other fund. It seems to be a good feature that allows the leverage of the market performance with good returns.

  • Partial Withdrawals

ULIP allows you to make the partial withdrawal after the mandatory 5 years of the lock-in period. You can easily withdraw the required amount after it according to your needs. Though there aren’t any rules on the amount you need to withdraw, be sure not to withdraw huge funds; it might lead to policy termination.


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  • Disciplined Saving

SIPs have a well-maintained essential long term wealth creation option for various goals. A certain amount will be deducted from your account each month and invested on behalf through an auto-debit facility.

  • Start with Small Amount

SIP allows you to invest even the smallest amount, as low as Rs 500. In case your income increases, you can increase the amount of investment. Moreover, you can extend the period if you wish to for better growth.

  • Market Volatility

Since SIPs spread your investments over a long period, it protects you from market volatility. In addition, it helps you to protect your corpus from any market dip. A drop in the corpus can affect your financial goals.

Factors Considering Before Deciding To With ULIP vs. SIP

Every month, if you are left with a limited amount to invest in the market and grow, it’s imperative to choose the right avenue for your finances. Here are some of the factors you should consider while choosing ULIP vs. SIP.


The main difference between them is that ULIP includes life cover, whereas SIP or Mutual Fund does not. However, the investment functions of both of them are similar and work equally.


Since a mutual fund is purely an investment-based product, the risk here is higher. On the other hand, a unit-linked insurance plan is first and foremost an insurance product, and it provides an inherent sense of security.

Tax Saving Features

When we talk about taxation mutual funds, ELSS provides tax-saving benefits under section 80C of the Income Tax Act, 1961, but ULIP offers the insurance, the premium paid towards the upkeep of the product is exempt from taxes under Section 80C and Section 10D of the Income Tax Act. ULIPs are exempt from LTCG tax, whereas mutual funds, including ELSS, are taxed up to 10% on returns exceeding Rs 1 Lakh.

However, ULIPs issued after 1 Feb 2021 will be further treated as capital gain if the annual premium paid is more than Rs 2.5 lakh. Such policy will be taxed at 10% maturity.

Fund Management Charges

The fund management charges for SIP at 2.50%, which is comparatively higher than ULIP. When you club them with other policies, SIP-related fees can be higher.

Whereas ULIPs have lower fund management charges at 1.35%. However, you might want to stay updated on other ULIP charges as well.

Final Verdict

Both ULIP vs. SIP are best to consider for accomplishing future financial goals. However, before choosing between the two, evaluate yourself and consider the above factors. It is quite obvious that if you are looking for long-term wealth creation, ULIPs are more suitable than SIP.

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