Every individual has their own financial goals, and they choose to invest in different instruments accordingly. However, if you are a first-time investor, choosing the right instrument can be tricky as there are several options. Two of the most popular choices are ULIPs (Unit Linked Insurance Plans) and SIPs (Systematic Investment Plans). Both are market-linked investment instruments. If you wonder which is better, knowing the differences will help you make the right choice. 

But before we get into knowing the difference between ULIP and SIP, let us first understand what they are. 

What is ULIP?

ULIP is primarily a life insurance policy that offers dual benefits of insurance and investment. When you buy a ULIP policy, the insurance company uses a specific amount to provide life cover. The remaining amount is invested in various market-linked instruments such as debt and equity funds, stocks, and bonds to generate returns for you. 

ULIPs can help you protect your family’s financial future if something happens to you during the policy period. In such cases, the insurance company will pay the death benefit amount to your family. They can use the money to carry out their everyday expenses and maintain the lifestyle they are used to even in your absence.

What is SIP?

The term SIP is associated with mutual fund investments. It is a way to invest in mutual funds wherein you can invest a small amount periodically in different funds of your choice to generate returns in the long run. SIP is one of the most efficient ways to build a large corpus by the time you retire. You can start multiple SIPs and invest in different funds based on your risk appetite and goals. 

ULIP vs SIP – knowing the difference

Investment type

ULIP is an insurance-cum-investment plan. In contrast, SIP is a pure investment vehicle. 

Investment period

ULIP is essentially a life insurance policy, and it is a long-term financial product. You can choose the policy tenure as per your needs, and it can range from 10-30 years or more. You must continue to pay the premium for the policy term you choose. 

On the other hand, SIPs don’t have a fixed tenure. You can invest in mutual funds through SIPs for as long as you want. 

Lock-in Period

ULIPs have a lock-in period of five years. There is no lock-in period for SIPs unless you invest in ELSS funds through SIPs, which has a lock-in period of three years. 

Withdrawal restrictions

ULIPs allow you to withdraw partially after the lock-in period. With SIPs, you can invest the funds anytime you want as there is no lock-in period. 

Charges involved

ULIPs involve multiple charges such as fund management charges, premium allocation fees, mortality and administration charges, etc. With SIPs, there are only entry and exit loads. 


When you buy a ULIP policy, the insurance company gives you the flexibility to choose the policy term, switch the funds, redirect your premium, increase the investment through top-up, etc. 

With SIPs, you have the flexibility to increase or decrease the capital amount to maximise the returns and reduce the losses. 

ULIP vs SIP – Which is better?

Now that you know the differences, you know that both investment options have their pros and cons. The investment you choose greatly depends on your personal needs and future goals. If you do not have a life insurance cover, you can invest in ULIP and get the benefit of life protection and the opportunity to build wealth at once. However, if you already have life insurance, and your goal is to accumulate wealth for long-term goals and don’t mind taking a risk, you can consider investing in mutual funds through SIPs.