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

ULIP vs. Mutual Fund vs. SIP vs. FD with so many investment options choosing one that meets your needs will work best for you. Understand ULIP, FD, Mutual Funds, and SIP to help you make the better choice.

  • 10,015 Views | Updated on: Sep 15, 2023

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. However, 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 FD. If you are unsure which investment option is best for your needs, we’ll walk you through some of the most popular choices and help you make the proper selection in mutual fund vs ULIP vs SIP vs FD.

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

Unit Linked Insurance Policy (ULIP)

ULIP is a unique investment product with dual benefits of investment and insurance coverage in 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. Furthermore, it provides tax advantages under Section 80C of the Income Tax Act of 1961. ULIP is regulated by the Insurance Regulatory and Development Authority of India (IRDAI).

ULIP is a compelling 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 one package of wealth building, tax benefits, and life insurance coverage. In addition, 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

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

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 funds, let us learn about the advantages of mutual funds. To satisfy your financial needs, you can quickly sell mutual funds. After liquidating the money, it is placed in your bank account within a few days. On the other hand, other mutual funds disburse money more quickly.


It 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

A mutual fund is a viable option for individuals who may not have the time or ability to undertake their analysis and asset selection. 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)

A 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). Depending on your convenience and financial goals, you can make monthly, quarterly, or annual payments. 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 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. Therefore, you should be able to choose the right fit by comparing all the aspects of ULIP vs mutual funds 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, your rate of interest 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 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 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

A monthly or quarterly interest payment schedule is an option. This could provide as a consistent source of revenue.

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 or Equity- Linked Savings Scheme

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

Most ELSS programs allow investors to start with as little as ₹500. This ensures that you can start investing immediately without building 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 include 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.

Difference Between ULIP, FD, MF, SIP & ELSS



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 is offered under Section 80C of the IT Act.

Tax deduction is 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 has 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.

The 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.

Depending on the type of fund, it differs.

Allows money withdrawal without any disciplinary charges.

Funds are available after the lock-in period.

Factors to Consider Before Deciding Between ULIPs and SIPs:

You must take into account the benefits provided, your level of risk tolerance, etc. when choosing between ULIPs and SIPs. Some of the elements listed below can assist you in choosing between SIPs and ULIPs:

Dual Benefits of Insurance and Investment

The fact that ULIPs provide life protection while SIPs do not is one of the key distinctions between the two products. A percentage of your ULIP contributions are allocated to an investment pool, just like mutual funds. The insurer collects funds from all investors and distributes them to various funds in an effort to increase returns. The remaining portion of the premium goes toward life insurance coverage.

Risk Factor

SIPs are hazardous investments because they are pure investment products, but the benefit of compounding allows you to earn bigger returns. Staying invested for a long time is crucial. However, because of the insurance quotient, the risk associated with ULIPs is only partially present. To lessen the detrimental effect on your invested amount, the fund managers redirect your investment toward lower-risk funds.

Fund management charges

SIP fund management fees are roughly 2.5% higher than ULIP fund management fees. There are a few more fees as well, including entry and departure loads and other ongoing fees. ULIPs, on the other hand, have fund management fees that are lower, at 1.35%.

Despite their initial similarities, SIPs and ULIPs have different asset allocations. Both of the charges are organised differently. Thus, they are different. The only fees associated with SIP in mutual funds are those for money management and an exit fee as a punishment for selling units quickly after the date of your investment.

In contrast, ULIPs assess fees under various headings like premium allocation fees, administrative fees, and fund management fees. Additionally, a percentage of your ULIP investments, known as the mortality charges, include the insurance payment.

Tax-saving Benefits

If you’re debating whether a ULIP or a SIPP is better from an investment standpoint, keep in mind that only ELSS, or an Equity Linked Savings Scheme in a mutual fund, offers tax advantages. Under Section 80C of the Income Tax Act, you can receive tax benefits for ULIPs up to a maximum of ₹1.5 lakh.

So which one should you invest in?

If you’re torn between ULIPs and SIPs, you should take into account some of the following variables before investing in either one:

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

For investors looking to increase their long-term wealth and insurance coverage, ULIPs are a suitable option. The maturity amount may be used for retirement, weddings, children’s college expenses, and other financial goals. Under a single plan, you get savings and insurance protection.

People who want to invest in equity for long-term capital growth but have little knowledge of the equity market or mutual fund possibilities. SIPS are also the ideal investment choice for those with a long investing horizon who don’t want to time the market.


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 a suitable scheme at the right time is necessary. In addition, 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.

- A Consumer Education Initiative series by Kotak Life

Amit Raje
Written By :
Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Amit Raje
Reviewed By :
Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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