ULIP vs Fixed Deposit

This articles focuses on ULIP vs Fixed Deposit. When it comes time to make investments, individuals are often confused among the different choices that are available. The most common confusion arises between the following methods: ULIP and FD. Which one of them is better?

This is an issue that stumps most small investors as they see and hear different versions of the answer depending on who or where they approach. Let’s make a quick comparison to understand them.

ULIPs vs FDs: the best one

ULIP is the Unit Linked Insurance Plan offered by the insurance companies. In ULIP, some of the premium individuals pay goes to equity investments, government bonds as well as other market-linked investments. Always look for a comparison of ULIP charges between different fund houses before you invest.

Bank FDs are money that has been invested in a bank for a fixed period, taking interest from the bank.

There is always some degree of risk involved in a ULIP, however low. Investors generally preferred investing in safer instruments such as fixed deposits, despite the lower returns. But only inflation will beat Fixed Deposits. On the other side, a ULIP is a market-linked strategy with exposure to equities. A portfolio with long-term equity exposure usually returns more than any other asset, such as fixed deposits or bonds.

Death Benefits

ULIP gives you a death benefit. Because it is Life Insurance, there is indeed a Sum Assured which would be payable to the nominee on the death of the policyholder insured. The Fixed Deposit is an investment avenue with no death benefits.

Must Read  Unit Linked Plans (ULIP) in India


ULIPs offer you the flexibility to change the allocation of the fund. With online switching made easy, you can swap between the funds depending on the market outlook and the risk mentality that you want to adopt. This facility is not available for use in Fixed Deposits.   ULIPs sometimes provide additional loyalty benefits through the issuance of additional units. This feature is again missing from Fixed Deposits.

Tax rebates and exemptions:

Only ULIPs provide both tax rebates and tax exemption facilities. Tax rebates mean that the amount invested is eligible to be deducted from your income, thereby reducing your taxable income and therefore your tax burden. The tax exemption indicates that the income received from those investments is not subject to tax. In other words, the payments received are tax-free in the hands of the investor. ULIPs offer tax rebates and tax exemptions under Sections 80C and 10D of the Income Tax Act, 1961.  Tax Saving Fixed Deposits are also there to get a Tax Benefit Locking Period for Tax Saving Fixed Deposit is 5 Years.

Lock-in time

Even though ULIP does have a lock-in period of five years, which is not present in bank Normal FDs, the truth is that if you withdraw the amount deposited in the F.D before the due date, there is a loss of interest due to the same.


ULIP has a premium allocation, fund management, and administration charges. These do not apply to fixed deposits.