ULIP vs SIP: which is a better long-term saving instrument?

Market-linked returns are crucial to help you optimize the returns on your hard-earned money and help build wealth over the long term. A Unit Linked investment plan or ULIP, as well as mutual funds, can help you achieve this goal. A systematic investment plan or SIP is the most convenient way to start investing in mutual funds if you are a beginner. However, if you are confused between ULIP Vs mutual fund, here are a few factors to help you make a decision:

  1. Benefits: One of the main distinguishing factors of a ULIP Vs mutual fund is that the former also provides insurance while investing a portion of the premium in market-linked funds to help you get optimal returns. ULIPs also offer a death benefit to the beneficiary in case the insured dies during the policy tenure. On the other hand, mutual funds are a pure investment option with no advantage of the death benefit. You can choose a specific amount to start a monthly, quarterly, or yearly SIP to purchase mutual funds units and ensure long-term capital growth.
  2. Taxation: Tax exemption can help you save more money you can reinvest further for wealth creation. Of all mutual funds, only investments in equity-linked savings schemes or ELSS funds qualify for a maximum deduction of up to Rs. 1.5 lakh as per Section 80C. However, when you invest in a ULIP, not only do you save tax on the premium paid up to Rs 1.5 lakh under 80C, the maturity amount is also tax-free according to 10(10D).  
  3. Switches: What differentiates a ULIP Vs mutual fund is the flexibility to switch between equity, debt, and balanced funds in tune with your needs and market movements. As an investor, you cannot switch funds for the entire duration of your SIP investment in mutual funds. Fund switching allows you to protect your accumulated wealth, generate maximum returns and also stay invested as per your ability to take risks in the future.
  4. Risk factor: A ULIP Vs mutual fund is no different since both invest your money in market instruments, however the insurance quotient in the former works as a financial cushion. A ULIP also allows you to divert your funds in the debt or balanced category during market volatility to avoid a negative impact, unlike SIPs which are high risk, high return instruments purely intended for investment.


Apart from these, a ULIP comes with a lock-in period of 5 years, while only ELSS mutual funds necessitate a 3-year lock-in among all mutual funds. When choosing between a ULIP Vs mutual fund, you should take into account your understanding of equities as well as the goals of you and your family in the next 10 to 20 years and decide accordingly. 

However, if you are looking to save for your child’s education or your retirement, or even wealth generation, you can consider ULIPs available on Finserv MARKETS that come with complete transparency on associated charges for your convenience. Choose a plan as per your needs and enjoy benefits such as the return of mortality charges, loyalty additions, fund boosters, partial withdrawal, and many more as you see your money grow over the years. 


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