Unit-linked Investment Plans (ULIPs)

Subject: Economy

Context: Private insurers ended with huge losses due to plunge in ULIPs during 2019-20.

Concept:

It is a multi-faceted insurance product issued by insurance companies that combine insurance coverage and investment exposure in a single offering.
regular premium payments, part of which are utilized to provide insurance coverage, while the remaining portions are pooled with assets from other policyholders, then invested in equity and debt instruments, much like mutual funds
It is used in products like life insurance, retirement income, and education expenses.

Difference with mutual fund

The returns from ULIP are on the lower side. The reason being, ULIPs promise a fixed sum whether or not the investment plan makes money. Whereas mutual funds investment return is based on risk.
ULIPs are largely an insurance product. ULIPs have a lock-in period ranging between three to five years, depending on the nature and structure of the investment scheme. Mutual funds generally have a lock-in period of one year.