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ULIP vs FD - Which is Better and Why?

ULIPs offer double investment option in wealth creation and risk assurance by investing certain amount of money and providing a life insurance coverage. Whereas FD offers only parking of liquid cash for a fixed time period.

  • 5,484 Views | Updated on: Jan 08, 2024

Many people choose a fixed deposit over a savings account because it offers a better rate of return. However, after RBI announced a repo rate drop, all Indian banks’ FD interest rates fell. As a result, ind the ividuals seek alternatives to fixed-income investments (FDs) that offer comparable or greater returns. ULIP is one of the appealing possibilities. This article will compare ULIP vs FD in great detail to help you decide which is the better option for you according to your requirements.

What is ULIP?

ULIP investment is a plan that offers both insurance and investment benefits. As a result, consumers are continually looking for the finest ULIP plan. The payment is divided into two parts in this situation: one is used to pay for life assurance, and the other is used to invest in money market goods. Even the returns from a debt fund in a unit-linked insurance policy are tax-free in the investor’s hands, making it unique among market-related investments.

Features of ULIP


One of the advantages of ULIPs is that you have the flexibility to switch between funds based on market circumstances and performances.

Life and Death Benefits Coverage

One of the distinguishing characteristics of ULIPs is that they offer both life insurance and investment benefits. This feature is not offered in any other investing tool. ULIPs must also contain life insurance worth nearly three times the annual cost, according to IRDAI regulations.

Period of Lock-In

Since ULIPs have a five-year lock-in term, they are the best option for establishing a consistent investment habit. The premiums are paid monthly or annually in one large payment throughout the lock-in period, which is normally defined by the policy’s award date.

Tax Advantages of ULIPs

Section 80C of the Income Tax Act allows for tax deductions on ULIP investments. On 80C investments, an investor can get up to ₹150,000 per year. Similarly, the earnings you get after your ULIP insurance are tax-free under Section 10D of the Income Tax Act. Furthermore, the cash received by the beneficiary in the event of the insured’s death is classified as tax-free under Section 10 (10D) of the IT act.

What is a Fixed Deposit?

A financial product offered by financial institutions or non-bank investment firms that pay consumers a higher interest rate than traditional savings accounts until the account matures is called a Fixed deposit.

Features of a Fixed Deposit


Fixed deposits don’t provide you with the flexibility to distribute your earnings as you see appropriate.

Coverage for life and a death benefit

Most FDs do not contain life insurance, so no death benefits are available.

Period of Lock-In

There is no lock-in period in the FDs, but the bank can charge a fee if the funds are removed before the deadline, resulting in a loss of interest.

Benefits of FD Taxation

The money invested is the only part of the investment that is tax-free. The income from a savings account is completely tax-deductible.

When comparing ULIP vs. FD, ULIPs are a better option to invest in as they provide you with the possibility to earn by investing your funds and also offer life insurance. Moreover, they are one of the finest investments you can make because of their adaptability. Therefore, when acquiring a ULIP plan, check overall features and read the policy’s terms and conditions completely!

- 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

In this policy, the investment risk in the investment portfolio is borne by the policyholder.

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