Key Difference: A mutual fund is an investment plan that pools money from various investors and then allocates that amount into various different companies on the stock market. ULIP, or a Unit Linked Insurance Plan, is a plan that offers two major benefits to its clients. It works both as an insurance plan as well as an investment plan.

Mutual funds and ULIPs are both plans that allow the client to invest a fixed amount of money in the stock market. However, these two plans are completely different from each other, and they offer different options to their clientele.

A mutual fund is an investment plan that pools money from various investors and then allocates that amount into various different companies on the stock market. Mutual funds are commonly for the people who are not so savvy with the stock market, but still wish to make money from investment. These investment schemes are offered by the banks and mutual fund companies that allot people who invest funds for their clients. The main reason for using a mutual fund scheme is how the investment is done. How this works is a company would consolidate money from 10 people, say a sum of 100 dollars each, this would result in 1,000 dollar. Had a person invested 100 dollars in the shares of one company and that company would have suffered loses, the person would have resulted in losing all of his money. Similarly, had the company made a profit, so would the investor. Now, if the mutual fund company invests the 1000 dollars in 10 companies, say 100 dollars per company. If one company suffers a loss, all the investors only suffer 1/10th of the same loss to their investment.

ULIP, or a Unit Linked Insurance Plan, is a plan that offers two major benefits to its clients. It works both as an insurance plan as well as an investment plan. Banks and investment companies allow the client to pick the amount they want to invest and a part of that investment will be taken as a premium for the insurance cover and the rest will be allotted in the stock market, similar to a mutual fund. Policy holders have the option of selecting the type of funds (debt or equity) or a mix of both based on their investment needs. Similar to mutual funds, the holder is allotted units, each of which has a Net Asset Value (NAV). Another catch of a ULIP is that there a specific lock in period, such as three years or five years, during which the holder cannot remove the money that he has invested in the market. However, during the investment period, they can choose and change the different companies their money is invested in. They can also reduce or increase the level of protection, options to surrender, additional riders to enhance coverage and returns as well as tax benefits. ULIP plans and options are native to India.

Comparison between Mutual Fund and ULIP:

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