ULIP and Mutual funds: Pros and Cons - Greyfont

ULIP and Mutual funds: Pros and Cons


ULIP stands for unit linked insurance plan. It is a product offered by insurance companies that gives investors both insurance and investment under a single integrated plan. In ULIP's, a part of your premium is assigned to a common sum of money called funds which invests in equity, debts or a combination of both.The returns on investments depend upon the performance of the funds opted by an individual. There are different types of ULIPS, wealth generation, retirement plan, children education, health benefits etc.


Mutual funds can be described in four words- versatility, simplicity, diversity and accessibility. It is an investment option that enables investors to pool their money together into one managed investment. Mutual funds can invest in stocks, bonds, cash or a combination of those assets. In simpler terms, mutual funds are like containers. Each container holds certain types of stocks, bonds to combine for one mutual fund portfolio.


Let’s discuss the pros and cons of ULIP and MUTUAL FUNDS:


ULIP - Pros

  • ULIP provides you with a benefit wherein you cancontrol where your money is invested

  • Protection benefits are given along with investment returns.

  • Flexibility of multiple fund options.

  • There are some additional benefits provided for critical illness, accidental death, disability etc.

  • It gives an option for staying invested for a long time.


ULIP - Cons

  • It has a lock-in period of 5 years.
  • ULIPS have fixed premium payment term and policy term therefore one should keep in mind a long term horizon.
  • The protection benefits become expensive at higher ages so one should understand the benefits before buying.
  • ULIPS offer low returns.
  • Returns cannot be guaranteed.



  • Mutual funds are convenient for the investors to buy investments which would be too complex to manage on their own.
  • Small or large amount of money can be invested in mutual funds, even if the investor doesn’t have much financial or investing experience.
  • If you want to take an exit from mutual funds, you can tell your agent to sell it. The funds come back to your bank account in 48 hours.
  • Investing in mutual funds gives you an exposure to stock market.



  • Mutual funds are expensive.
  • Mutual fund share price calculation are made public once per day.
  • There is no control over portfolio. If you invest in a fund, you give all control of your portfolio to the managers who run it.
  • Anytime you sell your stock, you will be taxed on your gains.


Mutual funds are always less tax efficient than ULIPs, but the recent introduction of 10%LTCG tax from equity investments has given them more advent. However, it’s not necessary to select an investment product based on one criterion. Mutual funds outpoint ULIPs on other parameters like returns, transparency, liquidity and flexibility.


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