Difference Between ULIP and Mutual Fund

Currently there are many investment options available in the market to invest in the financial sector. ULIP and Mutual Fund are one of these investment options. ULIPs and mutual funds have gained a lot of popularity in the last few years.

Before investing in any ULIP plan or mutual fund, you need to know the difference between the two. Today in this article we will try to find out the difference between ULIP and Mutual Fund.

So let us look at the difference between ULIP and Mutual Fund in more detail.

What Are ULIPs?

ULIP is also known as Unit Linked Insurance Plan. ULIP provides an insurance benefit as well as investment benefit i.e. through ULIP you can get the facility of investment along with insurance facility. It provides you life insurance cover as well as returns on this investment after a specified period of time.

A part of the premium paid for ULIP is used as life cover while the remaining part of the premium is invested in a fund which is invested in debt or equity instruments. It depends on the wish of the person that what he wants to invest in. An opportunity is given to the individual to choose the option of investing in a ULIP.

What Is A Mutual Fund?

A mutual fund is a type of investment instrument that helps investors pool their money into a fund which is then invested in various securities such as stocks and bonds. It is managed by an asset management company.

The returns from Mutual Funds depend on the performance of the underlying securities i.e. as the value of the securities increase, the returns from the Mutual Fund also increase, resulting in capital gains on the investment.

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Difference Between ULIP And Mutual Fund

The difference between ULIP and Mutual Funds is as follows-

1. Objective:

• ULIP is a combination of insurance and investment. ULIPs provide life protection as well as a means of wealth creation.
• Mutual Fund is a purely investment product. Through this, investments are made in various securities and there is a possibility of getting very good returns in the long term.

2. Regulatory Body:

• ULIPs are regulated by the Insurance Regulatory Development Authority of India.
• Mutual funds are regulated by the Securities and Exchange Board of India.

3. Tax Benefits:

• Investments made under ULIPs can be availed of tax deduction under section 80C of the Income Tax Act, 1961. Through this, investors can claim tax deduction up to 1.5 lakhs. Additionally, on death, the death benefit under ULIPs is completely tax-free.
• A mutual fund can claim tax deduction up to ₹1.5 lakh under section 80C of the Income Tax Act, 1961.

4. Policy Term:

• ULIPs have a longer policy term.

• The policy term of a mutual fund can be long, short or even medium term.

5. Return on Investment:

• The returns on ULIPs can be dynamic.

• The returns on mutual funds can vary depending on the scheme of the mutual fund.

6. Lock-in Period:

• A ULIP plan sets a lock-in period of 5 years.

• A mutual fund does not have any lock-in period.

7. Expenses:

• ULIPs also come with various charges like premium allocation charges, administration charges, fund management charges and mortality charges etc.
• Mutual funds have to pay professional management fees and operational fees etc.

8. Risk Cover:

• In a ULIP plan, death benefit is provided to the nominee in case of death of the policyholder. Along with this, compensation is also given on the amount spent on the death.
• On the death of the person in the mutual fund, the mutual fund is transferred to the nominee.