ULIP Vs. Fixed Deposit: Which is Better and Why?

A Fixed deposit is the preferred saving option of many as it provides a higher rate of interest than a savings account. However, on December 7, 2022, when the Monetary Policy Committee (MPC) declared to increase the repo rate by 35 basis points to 6.25%, the interest rates of FD in all the banks in India took a hit. As a result, people are looking for alternatives to FDs that provide similar or better returns.

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One of the attractive options is ULIP. Hence, investors have started comparing ULIP VS Fixed Deposits. Let us look at how ULIPs compare to FDs and find out is ULIP better than FDs.

What is ULIP?

ULIP is a life insurance plan that provides a maturity benefit as well. Part of the premiums you pay is invested in your chosen equity or debt fund. The maturity amount includes the returns earned on this investment. But Is a ULIP better than FD?

Yes. A ULIP provides more features and better versatility as compared to FDs. We give you a few reasons why ULIP is better than fixed Deposit-

  1. Life insurance

    The ULIP Vs. Fixed deposits can be better understood based on life insurance. The most prominent advantage of ULIP over FD is that they offer Life insurance. A ULIP provides a death benefit to your loved ones in case of your demise. In this way, you can ensure that your dependents are cared for even in your absence. Thus, you get the dual advantage of life insurance in addition to the chance of earning good returns via a ULIP.

  2. Flexibility

    Flexibility shows how UILP is better than FD. ULIPs are very flexible. You can switch between debt and equity instruments to take advantage of the market conditions. Therefore, you stand a chance of earning better returns with ULIPs. However, FDs operate at a fixed rate of interest, and hence the returns will mostly be the same.

  3. Tax saving

    Tax saving is another reason that people started comparing ULIP Vs. Fixed Deposit. The interest income that you earn on fixed deposits is taxable. However, ULIPs can help you save on taxes. The premiums that you pay toward ULIP are eligible for a tax deduction. The maturity amount of a ULIP is also tax-exempt. As a result, ULIPs are an excellent tax-saving instrument.

    Is ULIP better than FD? Yes, ULIPs are a better place to invest than Fixed Deposits. Apart from ensuring that your money is safe and providing you with life cover, they also give you a chance to earn by investing your money. This versatility is what makes them one of the best avenues to put your money in. When purchasing a ULIP plan, make sure to go through all the features and read the terms and conditions in the policy document thoroughly. 

Fixed Deposit VS ULIP

Let us discuss Fixed Deposit Vs. ULIP to further determine if ULIP is better than FD?

You can avail of tax exemption only on the investment amount; the returns are taxable You can avail of tax deductions on premiums, as well as the maturity amount
FD interest rates can go down on account of inflation ULIP, especially, debt related ULIP is likely to fetch more returns as bond rates go up
FDs offer no life cover ULIPs, in addition to saving your money and fetching you returns on your investment, also provide life insurance
FDs are not flexible. Once you invest your money, it has to stay in the same place for the term of the FD or till you decide to withdraw. You can easily change your fund allocations from equity to debt and vice versa according to the market conditions.
You earn a fixed interest on FDs The returns vary according to the market conditions


  • Can ULIP give higher returns?

    Ans: Even though the returns fluctuate depending upon the type of fund invested in, that is, equity, debt, or hybrid, Unit Linked Insurance Plans generally offers high returns if the asset allocation is done intelligently.
  • Which gives you better return MF or ULIP?

    Ans: When it comes to tax saving, ULIPs (Unit Linked Insurance Plans) are the best investment options to put your bets on. On the one hand, ULIPs offer you tax exemption up to Rs. 1,50,000 annually under Section 80C of the Income Tax Act. On the other hand, Mutual Funds do not offer any tax exemptions to investors unless invested in ELSS (Equity Linked Savings Scheme) Funds.
  • Is ULIP good for 5 years?

    Ans: ULIPs are considered as one of the long-term investment options. One can exit from a ULIP plan after 5 years, but to reap the real benefits of ULIP, one must invest their money for at least 15-20 years.

*All savings are provided by the insurer as per the IRDAI approved insurance plan.
*Tax benefit is subject to changes in tax laws. Standard T&C Apply
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
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^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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