Understanding the Differences Between ULIP & SIPs

Every individual wants to be financially stable, even in unfortunate times. While we may not be able to prevent an unfortunate incident from taking place, the least that can be done is prepare for it, especially in the financial aspect. If you too have been looking for one of the key investment areas to invest your money in, know that the earlier you start the better it would be for you. In case, you have come across the two popular options, namely SIP and ULIP, know that the two are great in their respective places. As far as the differences between the two are concerned, there are many that can serve as an ideal base for making a wise choice. 

Differences Between ULIPs & SIPs

The list of key differences between ULIPs and SIPs based on a series of aspects includes:

1. Plan Type

While a ULIP is an investment cum insurance product, SIP is a pure investment solution that invests a specific amount in a mutual fund. 

2. Lock-in Period

While the lock-in period for ULIPs is 5 years, a lock-in period of 3 years is applicable only under ELSS mutual funds. 

3. Withdrawal Option 

While in ULIPs, partial withdrawals are allowed after the completion of the 5-year lock-in period, in case of SIPs, invested money is allowed to be withdrawn anytime except in the case of ELSS mutual funds. In ELSS mutual funds, withdrawal can be done only when 3 years since the start of the scheme have been completed. Moreover, investors do not have the option to switch between funds.

4. Additional Benefits 

While in ULIPs, add-on loyalty benefit is applicable on completing a preset period after which extra fund units are issued, SIPs do not come with the provision of additional benefits.

5. Liquidity 

While ULIPs do not come with the liquidity feature during the first 5 years, SIPs allow full liquidity. Note that in ULIPs, invested money cannot be withdrawn or surrendered during the lock-in period, while on the other hand, in SIPs, the invested money can be redeemed as per one’s convenience. 

6. Flexibility 

In case of ULIPs, top-up, switching and premium redirection facilities enable investment flexibility. On the contrary, in the case of SIPs, invested money can be increased and decreased. Also, it generates long term returns.

7. Tax Benefits 

In the case of ULIPs, tax deductions of up to Rs. 1.5 Lakh are allowed under the Section 80C of the Income Tax Act, 1961. Moreover, death and maturity benefit are tax free in adherence to Section 10(10D) of the Income Tax Act, 1961. On the contrary, in the case of SIPs, tax benefits are not applicable. Note that only investments made in ELSS mutual funds are tax free up to Rs. 1.5 Lakh under Section 80C of the Income Tax Income, 1961.

Now that you are well aware of the differences between ULIPs and SIPs, make sure you choose the right investment solution for yourself after considering all your specific requirements.    

Also read - How to Compare & Buy ULIPs in India?

Reasons Why A ULIP Is A Good Choice For Senior Citizens

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.