If you’re planning to build long-term wealth in India, chances are you’ve come across the debate of ULIP vs mutual fund. Both these instruments promise growth and flexibility, yet differ significantly in their structure, risk, returns, and purpose.
Whether you’re a salaried professional, business owner, or a young investor just stepping into the world of finance, making the right choice between ULIPs (Unit Linked Insurance Plans) and mutual funds can have a big impact on your returns. This guide will help you compare both options in-depth so you can make a confident and informed investment decision in 2025.
A Unit Linked Insurance Plan (ULIP) is a unique financial product that combines investment and insurance. When you pay a premium, a portion goes towards life insurance coverage and the rest is invested in equity, debt, or hybrid funds, just like mutual funds.
Key Features of ULIPs:
Dual benefit: insurance + investment
Lock-in period of 5 years
Choice of fund options (equity, debt, balanced)
Tax benefits under Section 80C
Can switch between funds within the same policy
A mutual fund pools money from multiple investors and invests it in a diversified portfolio of stocks, bonds, or other assets. These funds are managed by professional fund managers who aim to maximize returns based on the fund’s objective.
Key Features of Mutual Funds:
Pure investment product
Highly liquid (especially open-ended funds)
Wide range of options (equity, debt, ELSS, hybrid)
Tax-efficient options available
SIP (Systematic Investment Plan) for regular investment
Let’s break down the ULIP vs mutual fund comparison in terms of essential factors investors look for:
ULIP: Investment + life insurance.
Mutual Fund: Solely focused on wealth creation.
If your primary goal is protection + long-term investment, ULIPs may suit you. But if you’re purely looking for high returns, mutual funds usually perform better.
Mutual Funds typically offer higher returns than ULIPs, especially equity mutual funds. This is because mutual funds have lower costs and are managed more aggressively.
ULIPs tend to have moderate returns due to charges and insurance components.
✅ Winner: Mutual Funds for return-focused investors.
ULIPs come with less market exposure due to their insurance structure, which may reduce volatility.
Mutual Funds have high exposure to equity/debt, making them more sensitive to market fluctuations.
If you’re a conservative investor who wants balanced exposure with insurance, ULIP might be safer. But if you’re okay with taking calculated risks for higher growth, mutual funds work better.
ULIP: Lock-in of 5 years.
Mutual Fund: Most have no lock-in (except ELSS which has a 3-year lock-in).
✅ Winner: Mutual Funds, especially for short-term liquidity.
ULIPs qualify for Section 80C deduction (up to ₹1.5 lakh) and maturity proceeds are tax-free under Section 10(10D).
Mutual Funds: ELSS funds also qualify for Section 80C, but other mutual fund gains are taxable:
Equity Mutual Funds: 10% LTCG above ₹1 lakh
Debt Mutual Funds: Taxed as per income slab post 2023 reforms
✅ Winner: ULIP for long-term tax savings; ELSS is best among mutual funds for 80C savings.
ULIP: Includes premium allocation charges, mortality charges, fund management charges, policy administration fees, etc.
Mutual Funds: Only expense ratio, typically between 0.5% – 2.5%.
ULIPs are costlier due to multiple layers of charges. Mutual funds are more transparent and economical in structure.
✅ Winner: Mutual Funds
ULIPs offer free fund switches between equity, debt, and hybrid (up to a certain limit per year).
Mutual Funds require redeeming units and reinvesting, which may trigger taxes and exit load.
✅ Winner: ULIP for switching flexibility within a single plan.
Mutual Funds are more transparent. NAVs, portfolio holdings, performance data, and fund manager strategies are publicly available.
ULIPs have limited public disclosures and lower transparency.
✅ Winner: Mutual Funds
Let’s look at scenarios to help you decide where to invest:
You need life insurance coverage with your investment
You’re looking for long-term tax savings
You don’t mind locking your funds for 5+ years
You want to invest in a disciplined manner for child education, marriage, or retirement
Your goal is maximum returns
You want complete liquidity and flexibility
You can manage your own insurance needs separately
You’re investing for short-term goals or wealth accumulation
Suppose you invest ₹1,00,000 annually for 10 years.
| Metric | ULIP | Mutual Fund (Equity) |
|---|---|---|
| Total Investment | ₹10,00,000 | ₹10,00,000 |
| Average Annual Return | 8-9% | 12-14% |
| Value After 15 Years | ₹22-24 lakhs (after charges) | ₹30-32 lakhs (after charges) |
| Life Insurance | Included (~₹10L cover) | Not included |
| Tax Benefits | Section 80C + 10(10D) | Section 80C (only for ELSS) |
So, in terms of pure growth, mutual funds outperform. But for a balanced insurance-investment mix, ULIPs can work.
If you’re planning to invest in mutual funds, here are some top-performing schemes this year:
Mirae Asset Large Cap Fund
Axis Bluechip Fund
Quant Active Fund
Parag Parikh Flexi Cap Fund
SBI Small Cap Fund
These funds have delivered returns between 12% – 18% consistently.
Here are some top-rated ULIP plans in India right now:
HDFC Life Click 2 Wealth
ICICI Prudential Signature ULIP
Max Life Online Savings Plan
Tata AIA Fortune Pro
Bajaj Allianz Life Goal Assure
These plans offer decent fund performance, flexibility, and tax-free maturity.
Depends on your financial goals. If you want investment + insurance, ULIP may be suitable. For higher returns and flexibility, mutual funds are better.
No. ULIP returns are market-linked. The performance depends on the underlying funds.
Technically yes, but the funds will be locked until the 5-year completion. Premature exit leads to penalties.
ULIPs have tax-free maturity under Section 10(10D), provided premium is within 10% of the sum assured. ELSS funds are tax-saving mutual funds under Section 80C.
The debate between ULIP vs mutual fund boils down to one major factor: your financial priorities.
If insurance + disciplined investing + tax-free maturity is what you seek, go for a well-rated ULIP.
If your only goal is maximum returns, flexibility, and cost-efficiency, then mutual funds are hands-down the better option.
In most cases, it’s more beneficial to separate your insurance and investment needs—buy term insurance and invest the rest in mutual funds. This ensures better coverage and returns.