ULIP vs Mutual Fund

There are many investment options in the market from which we can choose anyone based on our preferences. Examples are ELSS, Mutual Funds, PPF, SIP, ULIPs, etc. We will be comparing ULIP vs Mutual Fund vs PPF on various parameters like liquidity, tax saving, returns, etc.

Unit-Linked Insurance Plans (ULIP) are insurance policies that offer investors an insurance cover. Also, generate returns based on the investments in various sectors. They invite investors to invest their money in the scheme. The money is then invested in equity shares, bonds, etc.

Mutual funds are one of the most famous investment options. They are principally a trust wherein the money from various investors is merged and then invested in various investment instruments. Mutual funds are managed by fund managers who make investment decisions on behalf of the investors. Mutual funds are of various types and are classified based on different parameters such as the nature of the market, the duration, risk-factor, etc.

PPF(Public Provident Fund) is a government-supported scheme. This has a fixed rate of return. Also, PPF is tax-deductible under section 80C thus its is a tax saving investment. The government declares an interest in the PPF account every quarter. With the Government’s assistance, the security and safety of one’s capital and interest are High in the PPF.

Difference between ULIP vs Mutual Fund

At first, these two options might seem identical, but they are not. The differences between these two investments are explained below:

    1. Return on investment

      • The returns from ULIP are on the lower side. ULIPs have to give an assured sum to the investors. Whether or not the investment plan makes money.
      • On the other hand, the returns from mutual funds vary depending on the risk factor. Mutual funds with a higher equity exposure have the potential for higher returns while mutual funds with debt-market exposure offer slightly lower returns.
      • PPF is offering fixed returns of 8.0% p.a. The government can change the rate.
    2. Lock-in Period

      • ULIP is an insurance product. Therefore, insurance companies define the lock-in period for such investments before which the investment cannot be liquidated. ULIPs have a lock-in period ranging between 3-5 years depending on the nature and structure of the scheme.
      • Mutual funds generally have a lock-in period of one year but in some situations, like ELSS, the lock-in period extends to three years.
      • PPF generally have a lock-in period of 15 years.
    3. Transparency

      • ULIPs are highly sophisticated products that offer a mix of risk cover and investment. These have a less transparent structure concerning the underlying expenses and asset allocation.
      • Mutual funds are relatively transparent about the fees charged and the mutual fund portfolio holdings.
      • PPF is government-approved thus has a transparent structure.
    4. Taxation Benefits

      • Investment in ULIPs is eligible for Income Tax deduction under section 80C of the Income Tax, i.e. you can claim a deduction of up to Rs. 1.50 lakhs on your investment in ULIPs.
      • Whereas tax benefits in mutual funds offer a tax deduction only against investment in ELSS. Investment in any other mutual fund scheme is subject to taxation as per the applicable tax bracket.
      • PPFs have an Exempt-Exempt-Exempt policy. This means that the investors’ money is exempt during all the stages of the investment lifecycle. In other words, the investment is exempt from tax at the time of :
        • investment
        • on interest earned
        • at the time of maturity
    5. Expenses

      • Mutual funds offer the benefit of low expenses and professional management. SEBI has capped the expense ratio on mutual funds to 1.05%.
      • While there is no such limit for ULIPs. The charges for ULIP schemes can go much higher than mutual funds.
      • PPF does not have expense ratios
    6. Risk Cover

      • ULIPs come with an in-built insurance plan that offers the sum insured to your family in case of the policyholder’s death.
      • But in the case of mutual funds, there is no risk cover by way of insurance. You need to buy a separate insurance plan and pay an additional premium for the same.
      • PPFs have low risk thus safer to invest in.

ULIP vs Mutual Fund vs PPF

ParametersULIPMutual FundsPPF
RiskDepends on the schemeDepends on the schemeNIL
ReturnLow ReturnsMarket LinkedFixed
TaxationDeduction under section80C available up to ₹150000Applicable under section 80CExempt-Exempt-Exempt
LiquidityLess LiquidDepends upon the schemeless liquid
Lock-in Period5 YearsDepends on the scheme15 Years
Interest RateMarket linkedMarket linked8%
Minimum Investment₹2500₹100(conditional)₹500


ULIPs could be more suited for individuals with a long-term financial plan of wealth creation and insurance. The goal could be retirement, children’s education or personal financial goals. A ULIP scheme gives its investors the dual benefit of savings and protection, all in a single plan.

Moreover, ULIP’s are for individuals who are not familiar with the equity market or different fund options available with mutual funds but would like to benefit from long-term capital appreciation with investment inequities.

Before signing up for these investment options, you should check our website WealthBucket. We have tons of features of investments including equity mutual funds, liquid mutual funds or debt mutual funds. Our advisors will guide you to choose the best option for you.  You can either contact us at +91 8750005655 or email us at [email protected]

Related Articles:

Best Investment Options 

Tax Planning

One Time Investment Plans