ULIP vs SIP – Which investment option should you choose?

Read on to know the difference between ULIP and SIP, and which is a better option for future investments.
ULIP vs SIP – Which investment option should you choose?
3 mins

Difference between SIP and ULIP investments in terms of tax benefits, charges, returns, risk, and lock-in period. Know the difference and choose the best investment.

What is the difference between the terms of benefit?

Since SIPs help you invest in mutual funds or ELSS (Equity-Linked Savings Scheme) 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 benefits of an investment.

What is the 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 can be deducted from your taxable income up to this limit. However, the benefit is that ULIP of any amount from any insurance provider, fetches you a deduction. On the other hand, SIPs offer EEE tax benefits.

What is the difference in terms of charges?

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

What is the difference in terms of returns?

ULIP's return depends on whether you have chosen a ULIP, which means to invest 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% to 15% on average. In some cases, returns go up to 20% to 22% as well.

What is the difference in terms of risk and lock-in period?

As both investments are made in 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. You can end your investment anytime you want. This is true unless you take an ELSS-backed SIP, in which you have to adhere to a lock-in period of 3 years. However, a ULIP comes with a 5-year lock-in period, you cannot break the policy before its maturity.

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


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