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Kotak e-Term Plan provides a high level of protection to your loved ones in your absence. Know more

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Which is Better – FD, Mutual Fund, SIP, or ULIP?

Which is Better – FD, Mutual Fund, SIP, or ULIP?
  • 20th Jun 2022 |
  • 2,872

The popularity of investment tools has soared in the last decade. With most millennials in the workforce and the new Gen-Z following suit, investment has never been more vital. With so many investment options available, choosing one that meets your needs and works best to amass money while offering the best returns can be difficult. It can be confusing to make a decision when there are a lot of discussions on which is better: ULIP vs Mutual Fund vs SIP vs Fixed Deposit. If you are not sure which investment option is best for your needs, we’ll walk you through some of the most popular choices and help you make the right selection in FD vs mutual fund vs ULIP vs SIP

All About ULIP vs Mutual Fund vs SIP vs Fixed Deposit vs ELSS

Unit Linked Insurance Policy (ULIP)

ULIP is a unique investment product that has dual benefits of investment and insurance coverage into a single scheme. This allows you to earn market-linked returns by investing and getting insurance coverage. Premiums are pre-determined in ULIP by the insurance company.

A part of the premium is used to finance life insurance, while the rest is invested in other market instruments, including stocks, shares, and bonds. Since it is a long-term investment, ULIP helps you to meet your future financial goals. It also offers tax benefits under Section 80C of the Income Tax Act, 1961. ULIP is regulated by the Insurance Regulatory and Development Authority of India (IRDAI).4

ULIP is an effective long-term instrument to plan for financial goals such as children’s education and marriage.

Advantages of Investing in ULIP

Benefits Are Tripled

ULIPs provide wealth building, tax benefits, and life insurance coverage in one package. A certain amount of your premium is used in investing across stocks and bonds.

Partial Withdrawal

ULIPs feature a 5-year required lock-in period, after which you can withdraw a portion of your money as needed.

Selection of Assets

You can invest and allocate your assets in investment instruments such as life equities, stocks, and debt funds based on risk tolerance.

Death benefit

ULIP provides both death and maturity benefits to the policyholder. In case of the policyholder’s unfortunate demise, the death benefit is paid to the nominee or beneficiary.

Mutual Funds

A mutual fund is a form of financial instrument that invests in securities such as bonds, money market instruments, equities, and other assets by pooling money from multiple investors. Professional money managers administer the funds, allocating assets and attempting to generate investment income or income for the fund’s investors.

Advantages of Investing in Mutual Funds

To understand the difference between ULIP and mutual fund, let us learn about the advantages of mutual funds. To satisfy your financial needs, you can easily sell mutual funds. After liquidating the money, it is placed in your bank account within a few days. Other mutual funds disburse money more quickly.


Diversification is one of the most apparent benefits of mutual fund investment. The fund managers usually distribute your investment across stocks belonging to different sectors. This is known as Diversification. It’s the technique of distributing a single investment over various asset types. Hence, other asset classes can compensate for the loss if one sector does not perform well.

Diversification is one of the most apparent benefits of mutual fund investment. It allows us to build a diverse portfolio that separates the various industries’ headwinds.

Professional Portfolio Manager

For individuals who may not have the time or ability to undertake their analysis and asset selection, a mutual fund is a viable option. A professional fund manager handles everything and decides what to do with your money based on risk tolerance.

Flexibility in Investment

You can regularly invest monthly or quarterly in an equity fund if you have started to invest with a small amount of money. However, if you have a surplus amount, you can opt for a one-time investment in debt funds. Furthermore, there are different types of mutual funds. Mutual funds investment can be made through SIP or lump sum mode. You can choose any kind according to your requirements and goals.

Systematic Insurance Plan (SIP)

An SIP is a strategy for investing in mutual funds. It is a way of regularly investing a certain amount of money into a mutual fund account. SIP is regulated by SEBI (Securities Exchange Board of India). You can make monthly, quarterly, or annual payments, depending on your convenience and financial goals. Hence, SIP investment is secure and an extremely flexible financial product with low risk, which is the primary difference between ULIP and SIP.

Advantages of Investing in SIP

Begin small and expand

You may start with a small investment fund of ₹500 and progressively increase the amount based on your requirements and income development, with the option of reaping the benefits of compounding after a certain length of time.

Habitual Savings

It helps you to adopt a disciplined savings practice for long-term wealth/asset growth by automatically deducting a defined sum from your account.

Protect Yourself from Market Risks

SIPs safeguard your money from current market volatility and hazards because they are long-term investment products.

Easy to withdraw

The investment can be withdrawn at any time. However, it requires three years if the capital is invested in ELSS (Equity linked saving scheme) funds. You should be able to choose the right fit by comparing all the aspects of ULIP vs mutual fund as explained above. Another difference between ULIP and SIP is the lock-in period, as the lock-in period offered by SIPs is three years and five years in the case of ULIPs.

Fixed Deposit (FD)

ULIP vs FD has been a common topic of discussion among policyholders and investors. A fixed deposit is a financial product offered by banks or non-bank financial companies (NBFCs) that pay a greater interest rate than conventional savings account till the maturity period.

Advantages of Investing in Fixed Deposit

Fixed Returns

FD has a pre-determined rate of return. When you open an FD, the rate of interest you’re offered stays the same throughout your chosen period. Even if interest rates in the rest of the market fall, your FD interest returns will remain untouched.

Hassle-free investment

You can open your FD account online or visit the nearest branch through an already existing savings account. Once the account matures, you can renew it or get the maturity proceeds credited into your account, according to your preference.

FD and Loan

An FD is a safe investment to have on hand in the event of a financial emergency. It’s simple to get a loan against a fixed deposit. Based on the bank, you may be able to borrow up to 95% of the value of your fixed deposit.

Compound interest

If you opt for a Fixed Deposit account with a reinvestment option, you will get compound interest. In simple terms, compound interest refers to the interest you earn on the interest and the principal amount.

Source of income

You can opt for monthly or quarterly interest payouts. This can act as a source of regular income.

Tenure Flexibility

The duration of FDs ranges from a week to ten years. You can buy FDs for a period that corresponds to your commercial or personal requirements.


ELSS funds are equity funds that place a significant percentage of their corpus in equity or products with an equity component. Since they provide a tax exemption of up to ₹1,50,000 from your annual taxable income under Section 80C of the IT Act, they are also known as tax saving plans. A three-year lock-in period is required for ELSS funds. Additionally, if your income exceeds ₹1 lakh at the end of the three-year term of this scheme, it will be taxed at a rate of 10% as a Long Term Capital Gain.

Advantages of ELSS


The majority of ELSS funds make investments in a varied range of businesses, from small-cap to large-cap, and in a variety of industries. This enables you to diversify the components of your investment portfolio.

Mow minimum amount

The majority of ELSS programs allow investors to start with as little as ₹500. This ensures that you can start investing immediately without needing to build up a sizeable investible corpus.


Although you can make a lump sum investment in an ELSS scheme, most investors prefer the SIP method since it enables them to make small investments, take advantage of tax advantages, and have the potential to build wealth.

ELSS Returns

Profits can fluctuate because the program is market-linked, but investors can anticipate a return between 12 and 14%.

Fees for ELSS

The NAV of the program includes fund management fees, which are dependent on the investment and range from 2% to 4%. Therefore, there are lesser costs when direct plans are used.

Changing and Flexibility

There is no opportunity for switching or flexibility because the entire amount is invested in stocks and funds with stock market investments. However, a systematic transfer plan can be implemented when the lock-in period has ended.

Table of Difference



    Fixed Deposit

    Mutual Funds



    Lock-in Period

    5 years

    Minimum 5 years

    No lock-in for regular MFs

    3 years

    3 years

    Tax Benefits

    Tax deduction offered under Section 80C of the IT Act.

    Tax deduction offered under Section 80C of the IT Act.

    Allows different tax benefits based on LTCG and STCG of the chosen fund.

    No tax benefit unless linked with ELSS

    LTCG is taxed at 10% over and above ₹1 Lakh.


    Vary depending on the combination of equity, debts, and hybrid funds.

    Offers a fixed interest on the deposited amount.

    Equity MFs provide reasonable returns and debt MF returns vary from moderate to low.

    Depends on the fund chosen and the market fluctuations.

    Approximate return can be 12-14%, however, returns vary as it is market-linked


    Multiple charges are included.

    Involves penalty charges for pre-mature withdrawal.

    Includes high fund management charges

    Includes high charges like fund management charges.

    Exit load and fund management charges are included.


    Funds are available after 5 years subject to other policy details.

    Does not allow withdrawal till the tenure.

    Varies depending on the type of fund.

    Allows money withdrawal without any penal charges.

    Funds are available after the lock-in period.


    We all have different financial goals at different stages of life. These can include children’s education, buying a house, children’s marriage, retired life, etc. Hence, investing in the right scheme at the right time is necessary. Each financial instrument has its own set of features and benefits. As a result, it’s critical to do your research before committing to an investment opportunity that meets your personal and financial objectives.

    Kotak e-Term Plan


    • Nominal Cost
    • Multiple Plan Options
    • Flexible Payout Options
    • Critical Illness Rider
    • Tax Savings
    • Long term Coverage

    Ref. No. KLI/22-23/E-BB/492


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