While choosing to invest in market-linked financial instruments, you might find a range of it, offering multiple benefits. From such tools, there are Unit-Linked Insurance Plans (ULIPs) that enable you to get insurance as well as invest in funds. And there are mutual funds that invest in securities like bonds, stocks, etc. to give good returns. So, let’s compare both of these financial instruments and look at the differences to decide which one is better for you.

What is ULIP?

ULIP or Unit-Linked Insurance Plan is an insurance scheme that provides the policyholder with a life cover and also allows investment in market-linked funds. This is a unique kind of policy as there is an investment component available, enabling the individual to gain financial benefits while securing a life insurance plan. You can choose to invest in equity or debt funds as per your risk appetite. The insurance provider will also allow you to switch between the funds a specific number of times. ULIPs have a lock-in period of five years where partial withdrawal from funds is permitted.

Benefits:

• Tax benefits
• Provides life cover that secures your loved ones
• Investment component that gives returns after 5 years
• You can add riders to your plan to maximize coverage in unfavorable conditions like critical illness, accidental death, and others.

What is Mutual Fund?

A mutual fund is a financial vehicle used to invest in securities like stocks, bonds, and other assets that are professionally managed by a fund manager. Mutual funds consist of a pool of money that has been contributed by various investors. This corpus is then used to invest in numerous financial avenues for lucrative returns. There are two investment modes available in mutual funds, Systematic Investment Plan (SIP) and lump sum. In SIP, you invest a fixed amount on a regular basis whereas in lumpsum you contribute the money at one go. Both methods have their own pros and cons.

Benefits:

• Tax Benefits if you invest in Equity-Linked Savings Scheme (ELSS)
• Gives handsome returns
• Professionally managed funds
• Flexibility in investment

Comparison between ULIPs and Mutual Funds:

The above comparative view portrays how both the financial devices are investment tools but have distinct offerings. You can choose mutual funds if you want to opt for a pure investment option and go for ULIPs if you require insurance plus investment component. Both mutual funds and ULIPs are market-linked and have their own set of risk. Thus, it is recommended to go through the plans carefully.