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Should You Invest in ULIP or SIP?

ULIP or SIP As an investor, creating the right mix of investments for your portfolio is crucial. One of the biggest questions most investors are faced with nowadays is choosing between a standard SIP in Mutual Funds or investing in ULIP plans. Systematic Investment Plans, i.e., SIPs, are one of the best ways to inculcate a saving habit by investing money monthly, quarterly, or even annually towards a Mutual Fund of your choice.

These investments are purely inclined towards helping you create wealth, and the higher the returns you expect, the higher your risk appetite must be for your portfolio. However, a ULIP plan is unique because it offers you the opportunity to earn market returns on your investment and mitigate risk with a life cover.

Major Difference

  • Between ULIP and SIP, only ULIP offers a saving plan to help create wealth while keeping money aside as a life cover.
  • A part of your investment, usually the installments you make in the beginning few months, also known as premium, is put by ULIP under life insurance.
  • This assures the ULIP investor a certain amount that will be paid to their beneficiary in their absence.
  • The rest of your premiums are invested in various avenues deemed fit by the insurance company you chose to purchase the ULIP plan. This investment pool is generally a mixture of low to moderate risk-bearing avenues, which can help investors with their wealth creation goals.
ULIP vs SIP

Let us take a quick look at how investing in ULIP schemes would be different from starting a SIP in a Mutual Fund of your choice. 
TYPEUnit Linked Insurance Plans (ULIPs)Systematic Investment Plans (SIPs)
Investment purposeULIP is a mix of investment with life cover, and hence, your portfolio is exposed to less risky investments. Only ELSS Mutual Funds offer tax-saving benefits.
Tax-saving benefitsAny ULIP you purchase will allow you to save tax annually by offering a premium deduction from your taxable amount.Only ELSS Mutual Funds offer tax-saving benefits.
Fund Management chargesThe fund management charges for a ULIP are lesser compared to Mutual Funds.The fund management charges for Mutual Funds are on the higher side..
Additional chargesYou do not have to bear any extra charges when purchasing a ULIP plan. There are various charges involved when you have SIP in Mutual Funds, like entry load charge, recurring charges, and even the exit load charge.
Return on InvestmentULIP plans are not complete wealth creation plans and hence, investors would earn lesser returns on their investment in ULIP than with MF SIP. From a wealth creation perspective, SIPs in Mutual Funds tend to earn you higher returns in the longer run.




In conclusion, as an investor, you need to be sure about your expectations from the investment and the level of risk you are willing to bear. Once your investment motives are clear, choosing between ULIP and SIP in a Mutual Fund gets easier, and you can simply diversify your portfolio accordingly. Making an informed decision is quite crucial in such matters and these are one of the many ways one can leave an impact in the society.

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Any facts, figures or references stated here are made by the author & don't reflect the endorsement of iU at all times unless otherwise drafted by official staff at iU. This article was first published here on 4th January 2022.

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