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How is an SIP different from a ULIP? Which one is better for investment?

Different people have different motivations for getting into the investment game. The market offers various investment opportunities that may contribute to wealth accumulation. When faced with so many potential investments, it may be difficult for you to choose the best one. The Unit Linked Insurance Plan (ULIP) and the Systematic Investment Plan (SIP) in a mutual fund are two common investment vehicles. In both cases, you’re investing in something tied to the market. Let us discuss the differences between ULIPs and SIPs to help with your decision of choosing between them.

What is a ULIP?

A Unit Linked Insurance Plan (ULIP) is a combination of insurance and investing. ULIPs invest in equities and bonds and create returns directly related to market circumstances. It is also a long-term beneficial tool for wealth growth.

You may invest in a ULIP by paying specified premiums to the insurance provider. The premium may be paid monthly, quarterly, or annually. Furthermore, the premiums are invested in other products like stocks and bonds. If something unfortunate happens to you, your nominee will also get the insured amount. If the policyholder dies, the nominee receives the greater of the fund value or the amount promised. As a result, even if the investments are insufficient, these insurance plans provide optimum insurance coverage. The available fund value is paid when the plan matures. As a result, a ULIP plan provides insurance coverage during the policy term as well as investment returns at maturity.

What is an SIP?

A systematic investment plan (SIP) is a strategy for investing in a mutual fund over time. According to your affordability, a predetermined monthly contribution may be made to the mutual fund. Individual payments might be as little as Rs. 500. Moreover, payments may be spread out over various intervals, including weekly, monthly, quarterly, or annually. An SIP is a good choice if you are just getting started with investing. Disciplined SIP investment is often complemented with factors such as compounding, which helps appreciate the capital significantly in the long term.

ULIP vs. SIP – The differences

  • An ULIP combines investment and insurance. But an SIP is purely an investment instrument.
  • ULIPs provide access to various investment options, including equities, debt, and more. However, selecting a mutual fund plan requires careful consideration of the investment funds involved. 
  • You must make monthly premium payments for the duration of the insurance policy for a ULIP. However, there is no set duration for an SIP.  Therefore, you may invest as long as you see fit.
  • Under Section 80C of the Income Tax Act of 1961, you can claim a deduction from your taxable income for the premiums you pay for a ULIP. The tax advantages may not apply as much to SIP investments. However, under Section 80C of the Income Tax Act, a deduction of up to Rs 1.5 lakh may be claimed for investments made in ELSS mutual funds.
  • After the first lock-in period of five years has passed, you can make partial withdrawals from a ULIP.

On the other hand, with an SIP, the initial investment may be taken out at any time. But money invested in ELSS mutual funds cannot be withdrawn after three years.


Both ULIPs and SIPs are beneficial plans. A ULIP can be more beneficial if you are also looking for insurance coverage. But if you don’t want insurance coverage, an SIP could work better work you.