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SIP vs. ULIPs: Which one should you choose?

  • Highlights

  • SIPs do not offer insurance cover, ULIPs do

  • ULIPs and SIPs offer tax benefits under Section 80C

  • SIPs are more liquid while ULIPs have a lock-in period

  • SIPs usually offer higher returns than ULIPs

Your investments in SIPs and ULIPs (Unit Linked Insurance Plans) allow you to benefit from the gains associated with investing in market-linked instruments. However, there is a marked difference in the way they earn returns and in the way they function. For example, the tax benefits for both these instruments vary. So if you are debating which of the two to opt for, it is best that you take a closer look at both options.

Difference in terms of benefits

Since SIPs help you invest in mutual funds or ELSS (Equity-Linked Saving Schemes) regularly, they allow you to grow your wealth steadily, over a long period of time. In this regard, ULIPs offer an additional benefit. You can get life insurance cover, as well as enjoy the benefit of an investment.

Difference in terms of tax benefits

Both SIPs and ULIPs allow you to claim deductions under Section 80C of the Income Tax Act. The maximum amount of deduction is Rs.1.5 lakh. So, the amount you invest is reduced from your taxable income up to this limit. However, the benefit is that ULIPs of any amount from any insurance provider fetch you a deduction. On the other hand, SIPs offer EEE (Exempt, Exempt, Exempt) tax benefit. Here, the amount that you invest, the amount on maturity and withdrawal are all tax-free.

Additional Read: Step-By-Step Guide to Choosing A ULIP

Difference in terms of charges

The charges on ULIPs are as per Insurance Regulatory and Development Authority’s rules. This means apart from the premium you pay, the insurance provider is likely to add more charges such as a premium allocation charge, administration charge, mortality charge, fund management fees, etc. On the other hand, there is no extra charge in the case of an SIP. You only have to pay a penalty if you exit your policy immediately after starting it, before the holding period is over.

Difference in terms of returns

Returns for ULIPs depend on whether you have chosen a ULIP that is investing in debt funds, equity funds or hybrid funds. However, this factor is easier to determine when it comes to SIPs. You can expect returns ranging from 12%–15% on average. In some cases, returns go up to 20%–22% as well.

Additional Read: How to Invest In SIP?

5 Reasons why you should invest in SIPs

Difference in terms of risk and lock-in period

As both investments are linked to the market, they carry significant risk. In terms of benefit at maturity, it is best to plan both these instruments keeping long-term gains in mind. Here, one big difference between the two is that SIPs are highly liquid and you can end your investment anytime you want to. This is true unless you take an ELSS-backed SIP, in which case you have to adhere to a lock-in period of 3 years. However, a ULIP comes with a 5-year lock-in period, and, you cannot break the policy before its maturity.

Based on these differences, your financial goals and risk appetite, you can decide whether you should opt for ULIPs or SIPs.

Disclaimer - *Conditions apply. This product is offered under the Group Insurance scheme wherein Bajaj Finance Limited is the Master policyholder. The insurance coverage is provided by our partner Insurance Company. Bajaj Finance Limited does not underwrite the risk. IRDAI Corporate Agency Registration Number CA0101. The above mentioned benefits and premium amount are subject to various factors such as age of insured, lifestyle habits, health, etc (if applicable). BFL does NOT hold any responsibility for the issuance, quality, serviceability, maintenance and any claims post sale. This product provides insurance coverage. Purchase of this product is purely voluntary in nature. BFL does not compel any of its customers to mandatorily purchase any third party products.”

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All you need to know about selecting the best SIP


All you need to know about selecting the best SIP