ULIP or SIP: Which Is A Better Investment Option


When planning your investments, you should look for opportunities that allow you to build your wealth as well as yield quick and safe returns. It will help if you plan your finances in such a way that you will be able to achieve your short and long term financial goals, as and when the opportunity presents itself.

Hence, a lot of people recommend investing in Unit Linked Insurance Plans (ULIPs) and Systematic Investment Plans (SIPs) to accomplish financial goals. But the question that always arises is – ULIP vs SIP: which is better? Should one buy SIP or invest in long-term ULIPs?

By the end of this article, we believe that you will have a better understanding of both the investment instruments and can choose the one that best fulfils your investment needs.

The following pointer will help us evaluate ULIPs and SIP.

  1. Investment Type

ULIP investments offer dual benefits – wherein you can enjoy life insurance coverage as well as invest in funds of your choice. Basically, a part of your premium is utilised towards insurance while the remaining is invested in equity funds, debt funds, or a combination of the two.

On the other hand, SIPs are solely an investment instrument and do not offer any life insurance coverage benefits.

  1. Tax Benefits

As far as we know, SIPs do not offer any tax benefits. However, if you are investing in ELSS (Equity Linked Savings Schemes), you can avail the tax exemptions offered under the same.

ULIPs, on the other hand, offer tax deductions on the premiums paid for up to INR 1.5 lakh. Also, the death benefits and partial withdrawal after the lock-in period is over are exempted from tax.

  1. Investment Mix

SIPs are comparatively a riskier investment option as the entire amount is invested in funds. To earn high returns, you will have to expose your investment portfolio to a higher risk.

ULIPs are slightly a safer investment instrument as they are mainly an insurance vehicle. Also, the fund managers avoid exposing your investment portfolio to a higher risk to make sure that the invested capital is safe.

  1. Switching Option

A unique feature that ULIP investments offer is fund switching, thus making the instrument more flexible for you. Here, you have the liberty to switch funds between equity and debt or vice versa, depending on the market performances.

SIPs do not offer this feature, and you cannot switch funds during the policy term.

  1. Death Benefits

SIPs are entirely an investment instrument, and thus do not offer death benefits. ULIPs being an insurance vehicle do offer death benefits in case of your (the policyholder’s) sudden dismissal during the policy term.

  1. Lock-In Period

Generally, SIP has a lock-in period of three years. Whereas ULIPs have a lock-in period of five years. The higher lock-in period in ULIPs allows you to benefit from the rupee-cost averaging and the power of compounding. Hence, it is advisable to invest in long-term ULIPs to reap its return benefits.

  1. Fund Management Charges

The fund management charges are at 2.5% for SIP. Apart from this, there are charges such as recurring charges, exit load, and entry load charges. ULIP has fund management charges at 1.35%, thus making them an affordable investment instrument for young investors.

Understanding and evaluating both the investment instruments based on these pointers will help you choose a plan that best suits your needs.