Mutual Funds vs. ULIP

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Investments in UAE have evolved substantially within the past few decades. The market today is filled with a wide variety of investment vehicles that reap lucrative returns. Very often investors are stuck in the dilemma of choosing the correct investment vehicle. Investment vehicles should be chosen on the basis of long, short term goals and the current financial status of the investor.

Two of the most popular investment options in the UAE are mutual funds and Unit-linked investment plans (ULIPs). If you are planning to invest your earnings but the dilemma of choosing the correct investment vehicle is stopping you, don’t worry! We are here to help you and make sure that you choose the correct investment vehicle to park your extra income.

What is Mutual fund?

Whenever you think of investment in UAE, probably the first thought that crosses your mind is mutual funds. This is primarily due to the fact that mutual funds are one of the oldest investment vehicles that offer considerable returns regardless of the initial investment.

Mutual funds are managed by investment companies that have expertise in the investment sector. Mutual funds work by creating a pool of capital gathered from different investors that are investing with a common objective of creating and accumulating wealth. Mutual fund investments in UAE are managed by expert fund managers that make them a reliable choice of investment for all classes of investors. The pool of capital is invested by fund managers into market-based securities to reap profits. However, these investments are subject to market risks and hence involve some degree of risk.

Mutual funds, in general, are quite diverse and are divided into different categories based on the type of market securities. There are different types of mutual funds like equity funds, debt funds, hybrid funds, liquid funds, equity-linked saving schemes, etc.

What is ULIP?

ULIP or unit-linked investment plans are a type of investment vehicle that serves a dual purpose. ULIP is an integration of insurance and investment in a single plan. In the case of ULIPs, the premium paid by the investor is broken down into two parts. A small portion of the investment is allocated towards life insurance and the rest of the amount is invested into market-based securities to offer returns similar to mutual fund investment. ULIP offers the choice to invest in both equity and debt funds. Investors looking for aggressive returns can choose equity-oriented funds whereas conservative investors looking for secure investment options can invest in debt-oriented funds.

There are certain ULIP plans available in the market that offer additional protection via riders or inbuilt benefits. ULIPs are suitable for customers who are looking for insurance coverage and investment option simultaneously. In case of the untimely demise of the policyholder, ULIPs offer the choice of a lump-sum amount as a death benefit or a regular flow of income as per the convenience of the nominees.  

Differences between Mutual Funds and ULIPs

The biggest differentiating factor between mutual funds and ULIP is that mutual fund investments in UAE do not offer a life cover whereas ULIPs do. Insurance safeguards your family during phases of financial instability caused due to the untimely demise of the breadwinner of the family. Furthermore, ULIPs come with the option of customization which allows investors to enhance the coverage of the insurance.

From the perspective of an investment vehicle, mutual funds offer high rates of returns especially on equity-oriented funds whereas ULIPs offer moderate rates of returns comparatively. Mutual funds are more liquid investment than ULIP as they do not have any sort of lock-in period. ULIPs, on the other hand, comes with a minimum lock-in period of five years that makes them less liquid. When it comes to transparency mutual funds are relatively more transparent in terms of the fund management fees and portfolio holdings.  

The basic difference between mutual funds and ULIP can be understood by an exemplary situation that is as follows-

Rahul invests AED 5000 in a ULIP investment, while Rakesh invested the same amount into mutual funds. Every month a small portion of Rahul’s investment is utilized for providing insurance coverage which can be considered as insurance premium. This gets him an insurance coverage of AED 50,000. In Rakesh’s case, he would have to get a separate insurance policy to get some coverage for his family. In case Rahul passes away his family would be entitled to receive a death benefit of AED 50,000 or the true value of the fund whichever would be higher at that instant.  


ULIPs are highly suitable for individuals with long term financial planning objectives of wealth generation and insurance. On the other hand, mutual fund investments in UAE are suitable for investors with a short time horizon looking for high rates of interest.

Before making any investment-related decision investors should assess their risk tolerance capacity and financial goals. Based on the assessment investors should choose amongst mutual funds and ULIPs. If you are looking for a safe investment option for a long time horizon that ensures financial security and moderate rates of return then you should definitely go for ULIPs. However, if you want to grow your capital in a small period then you should go for mutual funds.

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