How is an SIP different from life insurance? Which is best for long-term investment?


When it is about maintaining a strong financial future, investing in the correct financial instruments could be of tremendous help. However, your investment can be of distinct kinds. You can make investments in bonds, stocks, mutual funds or even purchase a life insurance cover. Each of the products comes with its own set of pros and cons. Thus, the correct decision depends on your financial goals, risk tolerance level, income, and other financial liabilities. Discussed here are the 2 most preferred and common investment instruments – SIP mutual fund investment and life insurance. 

Life insurance

Life insurance is an agreement between you as an insurance policyholder and insurer, where the insurer assures to pay a specific amount to the beneficiary when you die or after a specific time period in exchange for the premium that you as a policyholder have served. There are distinct kinds of life insurance, like unit-linked investment plans (ULIPs), endowment plans, term insurance, etc. that provide distinct benefits. Life insurance, in general, offers multiple benefits, like protection against life, investment, and health coverage. 

SIP mutual funds

An SIP (systematic investment plan) in mutual funds is an investment instrument. A mutual fund collects funds from distinct investors like you to use the money to buy securities like bonds, stocks, etc. Using the SIP mode of investment, you can invest a small amount on a predetermined time period i.e., weekly, monthly, quarterly, six-monthly, etc. in the selected mutual fund of your choice.  

To understand both the products, here is a comparative analysis of the two – 

Particulars SIP mutual funds Life insurance
Definition A mutual fund is an investment vehicle that permits you to invest your funds in exchange for high returns. Using the SIP mode, you can invest in a mutual fund a predetermined amount at a predefined period.  Life insurance is a protection scheme that secures you and your family in the case of any unfortunate event.  
Risk component Mutual funds, like other investment options, carry some market risk as they invest in equities, which may be volatile over the short term. With an SIP mutual fund investment, you can lower the market risk through the rupee cost averaging feature, which prevents market timing. 


There is minimal risk involved with conventional life insurance schemes. However, you must ensure to pay the premium timely to get the assured policy benefits. 
Investment purpose A major goal of investing in via SIPs in mutual funds is to generate wealth.   The major reason to buy insurance is to protect yourself and the future of your dependents when you are no more around. 
Product kinds Distinct kinds of mutual funds involve – index funds, money market funds, equity funds, balanced funds, etc.  Life insurance can be categorised into – a term insurance plan, whole life insurance plan, life annuity plan, unit linked insurance plan, endowment plan, etc. 
Returns Returns from a mutual fund are comparatively higher as compared to life insurance. This is because the risk of investing in the market is often high, so is the reward.  Returns from life insurance include a death benefit, bonuses, and maturity benefit that is accrued over time. The benefit usually is a fixed sum that is determined during the purchase time. In the case of ULIPs, you get a return even on your investment. 

How to select?

Both investment options come with their own set of advantages. While SIP mutual funds allow you to form wealth, a life insurance policy protects your family. The correct combination of both is an ideal choice. With SIP mutual funds, you can form your long-term and short-term corpuses to attain your goals by investing a small amount periodically and with a life insurance policy, you can get an assured protection against your life and even provide financial stability once you retire or when you are no more, to your dependents.