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ULIP vs. SIP, this is the most common dilemma that investors face these days. Every now and then the question that most of the investors ask- should they go with a Systematic Investment Plan or a Unit linked insurance plan– which one is better? To conclude to an answer here is a simple guide to help you understand should you go for ULIPs or SIPs?

So, What are ULIPs?

ULIP full form is Unit Linked insurance plan. Ulip plans are unique as they offer the benefits of both investment and insurance in a single plan. By investing in a ULIP plan you get insurance cover and also the opportunity to invest across the stocks and the bonds. Basically, it gives you the opportunity to earn market-linked returns and simultaneously takes care of your insurance protection needs.

In addition to long-term wealth creation, Ulips also make a great way to inculcate investment discipline. You can enjoy good returns and use the amount invested to meet your long-term financial goals.

What are SIPs?

The full form of SIP is Systematic Investment Plan. In SIPs you invest a chosen amount is invested in mutual funds at regular intervals of time. You can choose to start a monthly, quarterly or yearly SIP. In other words, SIP Investments help you build a huge corpus over the time and you can start with an amount as small as Rs.500.  

The Difference between ULIPS and SIPs

Both SIPs and ULIPs have an investment quotient and the biggest difference is that ULIPs additionally have a life insurance quotient. And the insurer will pay this amount to the insured’s nominees should there be an untimely demise of the policyholder.

Here is an illustration:

Mr. X invests Rs. 1 lakh in a ULIP plan, while Mr. Y buys mutual fund units of the same amount. The money is invested for both Mr. X and Mr. Y. So, every month a portion of Mr. X’s investment is towards life insurance cover as the insurance premium. He gets an insurance cover of Rs. 10 lacs.

Whereas, Mr. Y would need to purchase a separate life insurance policy for life cover. And if Mr. X meets with an accidental death or untimely demise, the insurer will recompense his family members with a sum of Rs. 10 lakhs or the fund value, whichever is higher. However, this is not the case for Mr. Y.

ULIPs vs. SIPs

Here is quick rundown at the basic difference between SIPs and Ulips:

Investment Plus Life Insurance Only Investment
The invested amount offers tax-saving benefits under section 80 C Tax benefits are offered on Equity linked saving schemes
There is a lock-in period of 5 years ELSS have a lock in of 3 years
Fund management charges are around 1.35 percent Higher fund management charges around 2.5%

After taking into consideration your monthly expenditures and inflation you would invest for the future. So, where you put that money is extremely important. You need to find the best possible avenue to invest and reap high returns.

Factors to Consider Before Deciding Between Ulips and SIPs:

When deciding between Ulips and SIPs you need to consider the benefits offered, risk appetite etc. Below are some of the factors that can help you select between SIPs and ULIPs:

Dual Benefits of Insurance and Investment

One of the major differences between SIPs and ULIPs is that SIPs do not offer life cove while ULIPs do so. Just like mutual funds a portion of your ULIP investments are directed towards an investment pool. The insurer gathers the money from all the investors towards various funds in order to generate higher returns. And the rest of the premium is used for life insurance cover.

Risk Factor

The fact that SIPs are pure investment products makes them a risky investment but you get higher returns from the compounding benefit. The Key is to stay invested for a long-term. On the other hand the risk involved in ULIPs is partial because of the insurance quotient. The fund managers divert your investment towards lower risk funds to reduce the negative impact on your invested amount.

Fund management charges

The fund management charges for SIPs are nearly 2.5% higher than ULIPs. Additionally, there are a couple of other charges like entry and exit load and other recurring charges. On the contrary, ULIPs have lower fund management charges of 1.35%.

SIPs and ULIPs may appear similar upfront but their asset allocation is different. The charges differ as both of them are structured in a different way. SIP in mutual funds only charges fee for money management and an exit fee as penalty for selling units soon after your investment date.

ULIPs, in contrast, levy charged under different heads such as premium allocation charges, administration charges, and fund management charges. And a portion of your investments in ULIP include the insurance premium, it is called as the mortality charges.

Tax-saving Benefits

If you are considering ulip vs. sip which is better from investment perspective then do not forget that only ELSS i.e. Equity Linked Saving Scheme in mutual fund provide tax-saving benefits. In case of ULIPs, any amount up to Rs. 1.5 lakh can offer you tax saving benefits under Section 80C of the Income Tax Act.  

So which one should you invest in?

If you are stuck in Ulips vs. SIPs then before investing in any of these two, you need to consider some of the factors that are listed below:

  • Do you need life insurance cover?
  • Your investment horizon
  • Your risk appetite
  • Your financial goals
  • Do you want to save for unforeseen expenses or for retirement?

ULIPs make a suitable investment option for individuals looking for long-term wealth creation and insurance cover. The maturity amount can be used for children’s education, marriage, retirement, and other financial goals. Under a single plan, you get dual benefits of insurance protection and savings.

Individuals who are not know much about the equity market or mutual fund options and are looking for long-term capital appreciation with equity investments. And SIPS make a perfect investment option for those who do not want to time the market and have a long-term investment horizon.


Taking into consideration all the above factors ULIPS are preferable over SIPs for the insurance cover. However, if you want to start small and can increase your investment and do not want insurance cover SIPs are the way to go.