LIC Vs. Mutual Funds: Which Is Better?

Financial planning is as important as any other aspect of life. In today’s times, an individual is spoilt with a lot of financial investment choices. So, it becomes very difficult to understand and choose an investment best suited for someone. There are a lot of options to fulfill an individual’s investment as well as insurance needs. Sometimes it becomes very overwhelming, and at that time the investor should keep their primary goal in mind before investing their money anywhere.

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LIC policies and Mutual funds, even though are poles apart from each other, tend to be seen together when one thinks of investment.

In this article, you will understand Life Insurance and Mutual Funds separately as products, the difference between them, and which is better when it comes to investments.

LIC Vs. Mutual Funds

Life insurance and mutual funds are two very different products that are often compared when a person plans to invest their money. Following are some major differences between LIC and Mutual funds that will help you understand both much better.


Life Insurance

Mutual Funds


Life insurance is a pure protection plan that will secure your family financially in case of your untimely demise

Mutual Funds are a type of financial instrument created by a pool of investments from different institutions and individuals


The main purpose of a typical life insurance policy is to safeguard the financial future of the family of the policyholder in case of his/her untimely demise

The main purpose of mutual funds is to generate returns on your investments to meet your long term financial goals


It takes care of the liquidity through its loan facility

Investors can liquidate their units at any given time

Risk involved

Life insurance comparatively involves less risk than other options

Since mutual funds’ investments are subject to market risks, hence the risk involved is also high


The policy is in existence for a defined policy tenure

Mutual funds do not have any tenure. One can invest any amount at any point in time


Returns depend upon the policy type, but generally are low compared to the investments

Returns are significantly higher in long term

Rider benefit

Additional rider benefits are available under the policy

No rider benefits as such are provided under mutual funds


There is no diversification option when you invest your money in just one plan

Mutual funds comprise many securities, hence making the portfolio of the investor diverse

Tax benefits

Tax exemption is up to a premium payment of Rs.1,50,000 under section 80c of the income tax act, 1961

ELSS mutual funds only qualify for tax exemptions under section 80c of the income tax act, 1961

Disclaimer: Policybazaar does not endorse, rate, or recommend any particular insurer or insurance product offered by an insurer.

Let us now see LIC and Mutual Funds as products and decide what suits you better.

What Is Life Insurance Corporation Of India (LIC)?

As one of the most trusted insurance providers, the Life Insurance Corporation of India (LIC) offers an extensive range of insurance products. Life Insurance Corporation has a wide range of best-selling plans that offers the most comprehensive coverage benefits. The main purpose of a LIC policy is to offer financial support to the family of the policyholder in case of their untimely demise during the policy term.

There are different types of policies rendering different types of benefits. Some policies are purely insurance-based while some have the features of both insurance and investments.

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Types of LIC Plans

Generally, the Life Insurance Corporation of India offers the following plan types:

  • Term Insurance plans
  • Pension plans
  • Whole Life plans
  • Endowment plans
  • Unit Linked plans
  • Money-back plans
  • Micro Insurance plans
  • Health plans

Benefits Under LIC

Following are the benefits covered under LIC policies:

  • Risk coverage
  • Financial security
  • Building financial corpus
  • Tax benefits

What is Mutual Fund?

One of the most popular investment options these days, mutual funds refer to a pool of accumulated sums by various investors. Mutual Funds are a type of financial instrument that is created by a pool of investments from several institutions (Asset Management Companies) and individuals to gain returns on the capital invested over a period.

Basically, in mutual funds, the accumulated sum is invested in different assets like liquid funds, debts, equities, etc. It is an excellent investment option for individual investors to get great exposure. The funds’ corpus is managed by a portfolio manager or fund manager who is an investment professional.

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Types of Mutual Funds

In a broader term, mutual funds are categorized into the following types of funds:

  • Equity funds
  • Debt funds
  • Balanced or Hybrid Fund

Mutual funds are categorized keeping in mind their equity exposure and asset allocation.

Benefits of Mutual funds

Following are the benefits covered under Mutual funds:

  • Proper fund management
  • Easy to invest
  • SIP options available
  • Better returns
  • Diverse categories for investment
  • Affordable investments with easy payment options

Summing It Up!

Each person has his/her way of thinking and mindset while he/she is planning to invest. Some want financial securities while others want better returns. It is important to understand your financial potential before investing anywhere, be it a LIC policy or mutual funds.

In-depth knowledge about the product is very important before spending your hard-earned money.

Think wisely! Invest carefully!

*All savings are provided by the insurer as per the IRDAI approved insurance plan. Standard T&C Apply
^Trad plans with a premium above 5 lakhs would be taxed as per applicable tax slabs post 31st march 2023
+Returns Since Inception of LIC Growth Fund
~Source - Google Review Rating available on:-
++Returns are 10 years returns of Nifty 100 Index benchmark

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