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LIC or Mutual Funds: Which One Should You Go For?

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Are you looking for a secure investment option with good returns? You may have heard about the two popular options - Life Insurance Corporation (LIC) and Mutual Funds. But which one is the better choice? This blog post will compare LIC and Mutual Funds to help you decide where to invest your hard-earned money. Read on to learn more about these investment options and determine the better choice. We have tabulated the information to make it easy for you to understand and compare the two.

LIC vs. Mutual Funds: Differences

Features life insurance Mutual Funds
Definition Life insurance policies are designed to provide financial protection for a policyholder’s family in the event of the policyholder’s death. Mutual funds are designed to provide investors with a way to diversify their portfolios and make money over the long term.
Investment Objective Life insurance secures the family's future in case of the policyholder’s demise. Mutual funds help you meet long-term financial goals by giving returns on the investment made.
Risk Level Life insurance policies offer a guaranteed return for the policyholder. Mutual funds offer varying levels of risk depending on the types of investments held in the fund.
Liquidity Life insurance policies are not liquid assets, as the policyholder cannot access the death benefit until after the policyholder dies. Mutual funds are liquid assets, and investors can access their funds anytime.
Tenure Life insurance policies typically have a set tenure. Mutual funds are typically open-ended investments; investors can enter or exit the fund anytime.
Returns Life insurance policies typically provide a fixed return. Mutual funds typically provide variable returns based on the performance of the underlying investments.
Tax Benefit Tax exemptions are up to a maximum premium of INR 1,50,000 under Section 80C of the Income Tax Act, 1961. ELSS mutual funds are eligible for tax exemptions under Section 80C of the Income Tax Act, 1961, up to INR 1.5 lakh.
Diversification Life insurance policies are limited to a single type of investment. Mutual funds offer a wide range of investment options, allowing investors to spread their money across various asset classes.

Life Insurance Corporation of India (LIC): An Overview

Life Insurance Corporation of India (LIC) is India's leading life insurance provider. It is the largest insurer in India and has one of the country's most diversified insurance products. LIC was established in 1956 by an Act of Parliament and is wholly owned by the Government of India. It provides a wide range of insurance plans to cater to different needs, from life insurance plans, endowment plans, health plans, pension plans, and child education plans to Unit-Linked Insurance Plans (ULIPs).

Types of LICs

  • term insurance Plans: These plans provide life cover for a specific time, typically between 5-30 years. 
  • Whole Life Insurance Plans: These plans provide life cover for the policyholder's entire life. 
  • Endowment Plans: These plans provide life cover along with savings. 
  • Money Back Plans: These plans provide life cover along with periodic returns. 
  • Unit Linked Insurance Plans (ULIPs): These plans provide life cover and investment opportunities in the stock market. 
  • Child Plans: These plans provide the child with life cover and financial protection. 
  • Retirement Plans: These plans provide life cover along with retirement benefits. 
  • Group Insurance Plans: These plans offer life cover for members of a particular group or organisation. 
  • Micro Insurance Plans: These plans provide basic protection to low-income earners and the economically weaker sections of society.

Advantages of LIC

LIC is a popular investment choice for many due to its multiple advantages.

Here are some key benefits of investing in LIC:

  • Low Risk: LICs come with lower risk than many other investments, making them an attractive option for those who want to minimise their risk. 
  • Guaranteed Returns: The returns from LICs are guaranteed, meaning you know exactly how much return you can expect when investing. 
  • Tax Benefits: Some LICs offer tax benefits, which can benefit investors. 
  • Professional Advice: LICs come with the option of getting professional advice from experts in the field, helping you make informed decisions about your investments. 
  • Flexible Options: With LICs, various options and plans allow you to tailor your investments according to your individual needs and goals. 
  • Long-term Savings: LICs are ideal for long-term investments, helping you save and invest for the future.

What are Mutual Funds?

Mutual funds are an investment vehicle that pools the money of multiple investors into one large portfolio. Mutual funds are professionally managed and diversified, meaning they are invested in various assets to help reduce risk and provide the potential for greater returns. Mutual funds are generally considered a low-cost way for investors to gain exposure to various securities, such as stocks, bonds and commodities. Investors in mutual funds can buy into a fund based on its objective (such as growth, income or global diversification).

Types of Mutual Funds

  • Equity Funds: Equity funds invest in stocks and other equity-related securities. They tend to have higher volatility than other funds but also offer the potential for higher returns. 
  • Fixed-income Funds: Fixed-income funds invest in bonds and other debt instruments. These investments are generally less volatile than equity investments but offer a more consistent return. 
  • Balanced Funds: Balanced funds combine stocks and bonds in a single portfolio. This approach allows investors to reduce their risk while still achieving some growth in their investments. 
  • Index Funds: Index funds track a particular market index like the S&P 500. These funds are often used as a benchmark to compare other investments.

Advantages of Mutual Funds

Mutual funds have several advantages, making them an attractive option for many investors.

Here are some of the main advantages of mutual funds:

  • Variety: Mutual funds offer various options for investors, including domestic and international stocks, bonds and money market funds. With such a wide range of choices, you can easily find a fund that meets your specific investment goals. 
  • Professional Management: When investing in mutual funds, you benefit from professional management from experienced fund managers. It ensures that your investments are handled efficiently and appropriately. 
  • Cost Efficiency: Mutual funds are cost-effective because they allow you to invest small amounts without incurring significant transaction costs. It becomes easier for small investors to gain exposure to the stock market without making a huge initial investment. 
  • Diversification: Mutual funds allow you to invest in multiple securities at once, which helps you spread out risk. Diversifying your portfolio can reduce overall risk while achieving desired returns. 
  • Liquidity: Mutual funds are highly liquid, so you can easily access the funds when needed. It is especially useful for investors looking for quick cash.


In a nutshell, both LIC and Mutual Funds have advantages and disadvantages. Ultimately, deciding where to invest should be based on your individual needs and preferences. LIC provides guaranteed returns and stability, whereas Mutual Funds offer higher returns with higher risks. Finally, please make an informed decision about the option that suits you best.

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