Understanding ULIP and Mutual Fund

Unit Linked Insurance Policy (ULIP) is a life insurance policy which provides a combination of risk cover and investment. Mutual fund is purely investment and it is also called as collective investment in US. The money collected is invested in capital market instruments such as shares, debentures and other securities. ULIP is similar to mutual fund in terms of structuring and functioning. For example, investors will have the option of choosing and diversifying the funds into equity or debt in mutual fund and it is the same in the case of ULIP also. The only difference is ULIP covers insurance but mutual funds do not. Mutual Funds is regulated by Securities and Exchange Board of India (SEBI) and as of now, ULIP is regulated by Insurance Regulatory and Development Authority (IRDA). ULIP is eligible for tax exemption under Section 80C of the Income Tax Act and subjected to a limit of Rs.1 Lakh and investments in Equity Linked Saving Schemes (ELSS) of mutual funds are also eligible for tax exemption under the same section.