Difference Between ULIP and Mutual Fund

Difference Between ULIP and Mutual Fund


A Unit Linked Insurance Plan or ULIP and Mutual Funds are the two most popular investment vehicles that people invest to generate wealth in India. While both of them offer the potential wealth for capital gains, there are some core differences between, that need to be acknowledged. In this article, we will see the differences between ULIPs and Mutual Funds, so you can make an informed decision when choosing the right investment option for you.

What are ULIPs?

ULIPs or united linked insurance plans are investment products that offer the combined benefits of insurance and investment. When you invest in a ULIP, a portion of the premium goes towards life insurance, while the remaining portion is invested in various asset classes such as equity, debt, or a combination of both. This investment component of the ULIP is managed by a fund manager appointed by the insurance company.

What are Mutual Funds?

Mutual Funds are the type of investment products that pool money from multiple investors and then invest it in a diversified portfolio like stocks, bonds, securities, etc. Mutual Funds are maintained by professional fund managers who utilize their expertise in selecting top securities for the best fund’s portfolio. Returns from a Mutual Fund are dependent on the performance of the underlying assets or securities in the fund’s portfolio.

Differences between ULIPs and Mutual Funds

Insurance Component:

The primary difference between ULIPs and Mutual Funds is that ULIPs offer an insurance component, whereas Mutual Funds do not offer it. A significant portion of the ULIP premium is counted towards providing you with a life insurance coverage. The insurance coverage offered by ULIPs varies depending on the premium paid and the policyholder’s age.


ULIPs have higher charges compared to Mutual Funds. The charges associated with ULIPs include allocation of premium charges, policy administration charges, mortality charges, fund management charges, etc. These charges can significantly reduce the returns generated by the investment component in the ULIP. On the other hand, Mutual Funds have lower charges, primarily consisting of expense ratio and exit load charges.


Mutual Fund offers more flexibility than that of the ULIPs. Mutual Funds allow investors invest in a wide spectrum of asset classes and investment techniques. Investors can also switch between funds or change the asset allocation of their portfolio as per their investment goals and risk appetite. On the other hand, ULIPs offer limited flexibility, and investors cannot change the investment allocation once the policy is issued.


ULIPs and Mutual Funds are taxed differently. A life insurance product, ULIP, enjoys tax benefits under Section 80C of the Income Tax Act. The maturity proceeds of a ULIP are also tax-free under Section 10(10D) of the Income Tax Act. In contrast, Mutual Funds are taxed based on the holding period of the investment. Short-term capital gains (STCG) from Mutual Funds are taxed at a rate of 15%, while long-term capital gains (LTCG) above Rs. 1 lakh are taxed at a rate of 10%.


In conclusion, both ULIPs and Mutual Funds offer potential for capital appreciation, but there are differences significantly in terms of their features, charges, and tax implications. ULIPs offer life insurance coverage, but they have higher charges, limited flexibility, and are taxed differently compared to Mutual Funds. Mutual Funds offer more flexibility, lower charges, and are taxed based on the holding period of the investment. Ultimately, the choice between ULIPs and Mutual Funds depends on your investment goals, risk appetite , and financial situation. It is advisable to consult an expert of financial matters before making any investment decisions.