Why ULIPs Are Better Investment Options Than Mutual Funds

Are you planning to invest your surplus funds to secure your financial future? Are you in search of long-term investment instruments that can meet your monetary goals? If yes, then investing in Unit-Linked Insurance Plan (ULIP) is advisable, as it is one of the highly popular financial products available in the market today.

If you are curious to know the Unit Linked Insurance Plan meaning, we are here to guide you with its features, benefits, and various other aspects. ULIPs are a one-of-a-kind insurance plan that offers dual advantages of investment and life cover. The amount you pay towards the premium of your policy is divided into two parts. One portion gets invested in equity, debt, or a mixture of both. If you invest in a ULIP, it is advisable to have a long-term perspective of at least ten years to maximize your investment returns.

Contrarily, mutual funds are an investment avenue wherein the money from all investors is collected and invested in the capital market and bonds. This investment option provides the benefit of bulk buying, as you can invest in various stocks and bonds at affordable rates. 

Many investors are confused about whether to invest their hard-earned money in ULIP or mutual funds. Here are some key factors that can help you decide why ULIPs have the upper hand over mutual funds. 

Why ULIP score over mutual funds

ULIP investment is a more suitable option than mutual funds because it provides a mix of insurance coverage and investments. ULIPs have the edge over mutual funds because they offer various benefits, which include: 

  • Higher returns on investment

Though ULIP returns are subject to the capital market conditions, they are better than those offered by mutual funds. You can choose the type of fund you want to invest in considering the Net Asset Values (NAVs) from previous years. Besides this, you can invest in a mixture of equity and debt funds to regulate the risk of your portfolio. In such a case, even if one fund is in loss, the profits from another fund can absorb the losses. Additionally, ULIP provides the facility of switching from one fund to another, based on the equity market’s volatility or performance. Therefore, you can avert the losses by switching from the risky equity fund to a debt fund that has negligible risks.


Conversely, in mutual funds, a fund manager invests the pooled money in stocks and bonds. Here, you do not have the authority to choose the type of fund where you want to invest. Moreover, mutual funds do not offer the flexibility of transferring your investments from one fund to another. So, if you have invested heavily in an equity fund and the capital market is going through turbulent times, you may end up incurring huge losses. 

  • Better tax benefits 

As per Section 80C of the Income Tax Act 1961, the premium paid towards the policy is eligible for a tax exemption up to INR 1.5 lakh. Besides this, the amount earned from the investment is tax-free. In case of any untoward incident, the sum that your nominee will receive is also tax-exempt Section 10(10D) of the Act. Mutual funds do not offer such attractive tax benefits. 

  • Lower charges

ULIPs include different costs, like policy administration expenses, fund management costs, mortality charges, and premium allocation charges, among others. On the other hand, mutual funds include fund management charges and exit fees. Fund management charges in ULIPs are comparatively lesser than mutual funds. As per the Insurance Regulatory and Development Authority of India, fund management charges in ULIP cannot exceed 2.25%. Therefore, the fund management cost of ULIP cannot be higher than that of mutual funds in any circumstances. Additionally, ULIP returns are significantly higher than those of mutual funds, making it an ideal investment instrument.

ULIP is perfect if you are looking from the long-term purview.  Moreover, you have the option to invest in either equity or debt funds as per your risk-bearing capacity. All these aspects make ULIP a more investor-centric avenue, making it a viable option as compared to mutual funds.