Investment Plans 442 views August 27, 2021

Unit-linked Insurance Plans (ULIPs) and Systematic Investment Plans (SIPs) are two popular investment options among customers who want to get market-linked returns and build a corpus. ULIPs help individuals grow their wealth and provide life cover to their loved ones if they die during the policy term. On the other hand, an SIP allows individuals to invest a specific amount of money in mutual funds at regular intervals.


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Many people often feel confused about the difference between ULIP and SIP. That’s why, in this article, we will discuss the differences between them in detail so that you can understand better. Let’s start without any further ado.

What Exactly is ULIP and SIP?

Before understanding the difference between ULIP and SIP, it is necessary to understand them individually. As mentioned in the introduction, ULIP is an insurance-cum-investment plan that gives you favorable returns over time and protects your loved ones during the policy term. It offers various features like regular savings, insurance coverage to your family, tax benefits, long-term investment, etc.

On the other hand, an SIP is a pure investment plan where you invest money in a mutual fund of your choice at regular intervals. An individual can start investing with as little as INR 500. The longer you stay invested via an SIP, the higher your returns will be.

Differences Between ULIP and SIP

We have mentioned a few important points below to help you understand the difference between ULIP and SIP.

Dual Benefits of Investment and Protection

One of the key differences between ULIP and SIP is the life insurance facility. On choosing ULIPs, your family will get a death benefit in case you die during the policy term as a part of your premium goes into an insurance plan. Mutual Fund SIPs will not provide you life cover.

Investment Fund Options

ULIPs allow individuals to invest in different types of funds such as equity, debt and hybrid. From these options, individuals can choose as per their risk appetite and investment horizon with a single investment in ULIP. In contrast, you will need to choose different mutual fund schemes to invest in different types of funds via an SIP.

Multiple Premium Payment Options

Under ULIPs, you can choose multiple premium payment options – Single premium (one-time premium), regular or limited. You will need to pay the premium amount as per the chosen premium payment term. SIPs don’t offer such a facility. Also, there is no fixed tenure when you invest in a mutual fund via SIP. So, you can invest as long as you want.

Tax Benefits

Other than life cover and wealth creation opportunities, ULIPs also provide tax benefits on the premium paid and the benefits received under Section 80C and 10(10D) of the Income Tax Act, 1961, respectively. You can enjoy tax benefits of up to INR 1,50,000 in a financial year.

You will not get any tax benefits in SIPs except for the investments made in Equity-linked Saving Schemes (ELSS). Under this, you can get tax exemptions up to INR 1,50,000 per annum.

Lock-in Period and Partial Withdrawal Facility

Under ULIPs, individuals can enjoy the partial withdrawal facility after a lock-in period of five years. In contrast, under SIPs, you can withdraw the invested capital anytime you want as per your convenience. However, if you invest in an ELSS scheme via SIP, you will have to serve a lock-in period of three years.

Fund Switching Facility

ULIPs allow policyholders to switch between different fund options during the policy year if they want to protect or enhance their investment. Insurers usually offer a fixed number of free switches during a policy year. Other than this, insurers also offer a premium redirection facility to redirect future premiums into a different fund.

When we talk about SIPs, you cannot switch funds during the investment period. But you can redeem your existing SIP and invest in another fund. When you do this, the redemption would come under tax deductions as it will be treated as returns.

Fund Management Charges

In ULIPs, insurers deduct fund management charges to manage various funds in which you have invested money. These funds can be equity, debt or a mix of both. The maximum fund management charges can go up to 1.35% per annum of the overall fund value. Apart from this, ULIPs ask for multiple charges – Premium allocation, policy administration charges, mortality charges, partial withdrawal charges, etc.

On the other hand, SIPs deduct 2.5% or more per annum of the overall fund value as fund management charges. As compared to ULIPs, SIPs have only entry and exit load charges and, that too, in limited conditions.

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