FDs and Unit-Linked Insurance Plans (ULIP): Which is better? 

Fixed deposits and ULIPs

Fixed deposits are popular among savers, thanks to higher interest rates than savings accounts. However, investors always seek instruments that provide higher returns, like ULIP or Unit Linked Insurance Plans. A ULIP is an insurance plan that doubles as an investment opportunity and includes life insurance coverage. Let’s differentiate between ULIPs and fixed deposits to understand the products better.

Which is better for investment: FDs vs. Unit-Linked Insurance Plans (ULIP)

There are several benefits of ULIPs, which are more flexible than traditional FDs. The advantages of ULIPs over fixed deposits are as follows:

●Earnings from FDs are subject to income tax. In ULIP, you may qualify for tax deductions on the premiums you pay and the amount you receive at maturity.

●Inflation may erode returns from FDs. When bond rates rise, ULIPs, particularly those that invest in debt, stand to gain financially.

● FDs don’t come with life insurance coverage. Besides tax advantages, capital gains, and life insurance, ULIPs are a great way to build your nest egg.

● FDs are not flexible. When you put money into a fixed deposit (FD), it stays there until the FD matures or you withdraw it. In ULIPs, depending on the state of the market, you can switch your funds between equity and debt completely tax-free.

● Interest in FDs is guaranteed. In ULIPs, profitability varies with the state of the market.

What is a fixed deposit?

What is a fixed deposit? Banks and financial institutions offer fixed deposits, where investors deposit a certain amount for a predetermined tenure. You’ll get a fixed interest rate for the deposit. Your initial primary investment amount will be returned to you by the financial institution on maturity, plus the interest accumulated up to that point.

Unlike other investment options, banks offer a fixed interest rate on these products. The interest you earn on your term deposit will be fixed and unaffected by market fluctuations. You may use an FD interest calculator online to estimate your potential return on investment from a fixed deposit.

What is a ULIP?

ULIPs, short for Unit-linked Insurance Plans, are quite popular with investors who want to achieve long-term financial goals. ULIPs are unique in that they combine investment and insurance in a single product. The ULIP premium you pay has two parts: A portion will go to insurance coverage. The rest will be invested in the market through equity or debt funds or balanced funds that invest equally in equity and debt funds. Policyholders can opt for monthly or yearly payments of premiums.

To avail of the benefits of ULIPs, you must pay premiums consistently. If you have a risk appetite, you can invest in equity funds. But if you prefer steady returns, debt funds could be an option. As an investor, you can switch your funds between equity and debt.

FDs vs. Unit-Linked Insurance Plans (ULIP): A detailed comparison

Here are some of the benefits of ULIPs to help you choose between the two investment products.

Life insurance

Life insurance is the primary distinction between ULIPs and fixed deposits. Compared to FD, the main benefit of ULIP is the inclusion of life insurance. In the unfortunate event of your death under ULIP coverage, your beneficiaries will get the death benefit. Therefore, a ULIP offers the potential for financial gain in addition to the security of life insurance.


ULIPs provide a great deal of customization. Depending on the market condition, you may choose between debt and equity funds, offering the potential for higher returns. On the other hand, FDs come with a fixed interest rate, and the sum assured is fixed.

Taxation benefits

ULIPs are preferable to FDs as an investment vehicle as they allow you to profit by investing in markets and provide life insurance. Besides, ULIPs help you enjoy tax benefits for the premium paid and a tax-free maturity benefit. Moreover, you can switch between debt and equity funds tax-free.

Investment returns

As interest rates fall, bond prices rise as investors prefer fixed-income instruments such as bonds. Due to higher demand for bonds, the price of bonds rises. Depending on your risk appetite, you can choose between equity or debt funds or opt for balanced funds, a mix of both.


In conclusion, ULIPs are superior investment choices over fixed deposits considering the tax benefits and potential for higher returns. If you wish to enjoy the benefits of ULIPs, you should do proper research to evaluate various plans carefully before deciding.


Is ULIP a more advantageous investment option than FD?

Investing in ULIPs looks advantageous over putting money in a fixed deposit. ULIPs provide life insurance coverage and enable you to grow your money by investing in market-related instruments. Because of their adaptability, they are a great investment option.

Do fixed deposit accounts provide insurance?

No, fixed deposit investments do not provide any insurance coverage. But you can earn guaranteed returns on your investment with an FD account.

Is ULIP a good long-term investment?

ULIPs offer the potential to earn higher returns, tax savings, life insurance, and the option to switch between funds. ULIPs help policyholders achieve long-term financial goals.

What is the minimum tenure of a fixed deposit?

You can invest in a fixed deposit account with a minimum duration requirement of seven days.

Is it wise to invest money in a unit-linked insurance plan?

Compared to traditional insurance plans, ULIPs provide superior returns. The equity benefit of ULIPs offers the potential to earn higher returns than other types of insurance policies. The premium you pay into a ULIP will be invested across asset classes and funds.

Which is better FD or ULIP?

ULIPs are generally considered better than FDs as they offer the potential for higher returns, life coverage, and investment flexibility, while FDs provide safety but lower returns.

What is the difference between ULIP and guaranteed plan?

ULIPs offer market-linked returns and flexibility, combining insurance and investment. Guaranteed plans provide fixed returns and regular payouts without market exposure, focusing on safety and predictability.

Is it good to invest in Unit Linked Insurance Plan (ULIP)?

ULIPs offer flexibility and dual benefits of insurance and investment. Advantages include tax benefits, long-term investment, and partial withdrawals. However, they can be expensive and market-dependent.

Which one is better mutual fund or ULIP?

Mutual funds are generally preferred for pure investment, offering potential for higher returns. ULIPs provide a mix of insurance and investment but may have higher charges.

Disclaimer: Fixed deposit products are generally considered safe investments as they are not subject to market fluctuations. However, investors are advised to exercise caution while investing in FDs. Risks include the financial position and solvency of the issuing company/entity during the tenure of the deposit. The facts mentioned in this article are for informational purposes only and should not be considered investment/financial advice from CoinSwitch.

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