LIC or SIP – which is better is an obvious question for a risk averse investor who wants to invest his hard-earned money. One is bound to be tempted to look at the benefits and risks of both LIC or SIP.
However, LIC and SIP, both are altogether different products just like mango and apple. In this post we will discuss both products benefits in detail.
Before jumping into the difference between LIC and SIP, it is necessary to understand the difference between insurance and investment.
Table of Contents
What is Life insurance?
Life Insurance is a legal contract between the insurer( insurance company) and the insured, wherein you promises to pay a certain amount of money( premium) and the company promises to pay a sum insured in case of any eventuality with the insured.
At the same time companies also pay some maturity benefit after the promised period. The maturity benefit amount varies from policy to policy and plan to plan.
What is LIC?
Life Insurance Corporation of India (LIC) is a government-owned insurance company. LIC schemes provide life insurance cover, money savings and tax deduction under section 80C.
LIC schemes ensure financial security in case of untimely death. It provides life cover amount along with bonus ( if applicable) at maturity or at a predecided interval.
Benefits of LIC Schemes
1. Life Cover with Savings
Most LIC policies offer dual benefits – they provide life insurance protection plus a savings/investment component. That means your money grows while you stay insured.
2. Guaranteed Returns (in Traditional Plans)
Many LIC policies offer guaranteed maturity benefits, making them ideal for risk-averse investors who want stable, assured returns.
3. Financial Security for Family
In case of an unfortunate event, LIC provides a lump sum payout to your nominee – securing your family’s financial future.
4. Long-Term Wealth Building
LIC plans like Endowment, Money Back, and Whole Life are structured for long-term saving habits and wealth accumulation.
5. Tax Benefits
LIC premiums are eligible for tax deductions under Section 80C, and the maturity amount is usually tax-free under Section 10(10D) (subject to terms).
6. Loan Facility
You can take a loan against your LIC policy (after a few years), which helps in emergencies without liquidating your investments.
7. Trusted & Government-Backed
LIC is a government-owned, highly trusted brand in India, with a solid claim settlement record and decades of service.
8. Bonus & Loyalty Additions
Participating policies earn annual bonuses, and some offer final additional bonuses (FAB) at maturity, enhancing returns.
9. Flexible Premium Payment Options
LIC offers multiple premium payment modes – monthly, quarterly, half-yearly, or yearly, and even single premium options.
10. Customizable Plans
From term plans to child plans, pension, ULIPs, and savings plans – LIC has a wide variety to suit different goals and life stages.
What is SIP ( Systematic Investment Plan)
Mutual Fund SIP Full Form is a Systematic Investment Plan. SIP is a way/method to invest in a mutual fund scheme.
Here you pay a Fixed Amount at regular intervals. You commit to invest a fixed amount after a definite interval ( say, monthly, quarterly, half-yearly or yearly).
SIP helps to build huge wealth in a pocket-friendly manner. You pay a pocket-friendly amount each time. SIP investing averages out the purchase cost. SIPS are popular because they make mutual fund investing easy and affordable.
To read more about mutual funds: Beginners guide to mutual funds
Benefits of Systematic Investment Plan
1. Start Small, Dream Big
You don’t need a huge amount to start. With SIPs, you can begin investing with as little as ₹500 a month. Perfect for beginners or anyone building a habit!
2. Invest Automatically, Without Stress
Set it and forget it! SIPs are automatic. The money gets invested every month from your bank account—no manual effort, no timing the market.
3. Rupee Cost Averaging – Buy More When the Market is Down
Markets go up and down. With SIP, you buy more units when prices are low, and fewer when they’re high. This helps average out your cost and reduces risk over time.
4. Power of Compounding – Let Your Money Work for You
The earlier you start, the better! SIPs grow your money through compounding, which means you earn returns on your returns—a snowball effect for wealth.
5. Discipline Made Easy
SIPs help build a regular investment habit. It’s like a monthly gym for your money—consistent and good for long-term health.
6. Flexible and Friendly
You can increase, decrease, or stop your SIP anytime—no penalties or stress. Life changes? SIP can adapt with you.
7. No Need to Time the Market
With SIP, you invest consistently, so you don’t need to worry about “when is the right time to invest.” It’s like planting seeds every month—you focus on the long harvest, not the daily weather.
8. Goal-Based Investing
Whether it’s buying a house, planning for your child’s future, or retiring early, you can set different SIPs for different life goals.
9. Low Risk, Long-Term Gain
By spreading investments over time and avoiding lump-sum risks, SIPs help you manage market ups and downs more calmly.
10. Track and Grow
With SIPs, you can monitor your growth online, make changes, and stay in control. It’s simple, transparent, and empowering.
Read more about mutual funds
LIC or SIP Which is better?
Both products are exceptionally best and the best in their peer category. But here, the question of the hour–what do you need ?
The reason of buying – Insurance
If you want to buy for insurance purposes than LIC is best. You can invest in a variety of insurance policies.
The reason of buying – Investment
If your reason for buying is investment, then SIP is better. Because SIP yield is better in the long term.
Mixing Insurance with Investment?
It is never a good idea to combine investment and insurance in a bundled product.
In India, more than 90% of people buy endowment or ULIP Plans to fulfil their needs, which combined insurance and investment.
These products do not provide good returns and insurance cover is also quiet low. Read more about it.
If your need is insurance then definitely one should buy a term insurance.
If your need is investment then one can choose from a variety of options such post office saving scheme, bonds, Mutual funds etc.
There are Mutual funds of SIP in mutual funds because one can choose his investment amount, duration of investment and frequency of investment also.
One can get inflation linked returns from SIP.
Taxation of SIP and LIC
In case of LIC Investments you get tax benefit of 1.5 lakh under section 80C and the maturity is also tax-free. While in the case of SIP, maturity or redemption is taxable in nature.
SIP Profits over 1.25 lac are taxed@ 12.5% after completion of 1 year. If one withdraws before completion of 1 year, then gains are taxed @ 15%.
Read More Pay LIC Premium Online – Easy ways to pay
SIP Taxation-How SIPs Are Taxed
Top 5 reasons why you should choose Mutual Funds over Insurance
Mutual Fund SIP-Systematic Investment Plan II Step by step guide on How to Start a mutual fund SIP
LIC Vs SIP – Real Life Example
Let’s take an example of Ms. Mamta Khanna. Let’s say she starts a SIP in equity mutual fund for 11 years and starts a LIC policy at the same time for same amount.
The below SIP investment value is calculated using SIP Calculator
| Monthly SIP amount in MF ( Axis bluechip Fund) | Total Investment | Investment Value after 12 years | Annual Return |
| 10000 | 14,40,000 | *32,42,713 | 12.72% |
| Monthly LIC SIP ( Table no. 914) | Total Investment | Investment Value after 12 years | Annual Return |
| 10000 | 14,40,000 | *19,96,800 | 5.3% |
*please note that the return and investment value may differ than above. Since the value is changing with the scheme performance and LIC Bonus rate declaration.
Now, let’s evaluate what is the benefit and disadvantages of both the investments.
| Features | SIP Benefits | LIC benefits |
| Tax benefit | No tax benefit ( but one can invest in ELSS MF to get tax benefit) | Tax benefit |
| Life Cover | No Life Cover In case of death the fund value will be given to the family. | You get a Life cover of 13,50,000 for the given amount for 12 years. So in case of unfortunate death of the person, the family will get Sum Assured ( 13.50 Lac) and Bonus till date. |
| Investment | High growth rate is seen | Low return on Investment |
| Safety | In Short term, one may get lower or negative returns also. Returns are market linked | Return and capital safety is guaranteed. |
Are SIP safe?
SIP full form is Systematic Investment Plan. Here, the investor is choosing to invest a fixed ( pre- decided) amount after each period ( monthly, quarterly, yearly etc.).
On investment units are alloted on the basis of price.
SIP is a safe method to invest in mutual funds. In the case of a lump sum investment, there is a substantial risk of losing money if the market declines. But with SIP investment, the money is invested across the market ups and downs and hence is quiet safer than lump sum investment.
However, SIP returns might be low in short span of times( in declining market) but the returns are substantial in long run ( 5 year or more).
Don’t worry, there are ways to invest lumpsum amount too in mutual fund.
Read more about Is SIP investment safe or not?
Learn how to invest lump sum amount in mutual funds.
What is average interest rate in SIP?
Although mutual funds are dynamic products, but on an average interest rate in SIP may fall between 6%-15% if holding period is long. This return is not guaranteed and this may change from fund to fund, market condition and other factors.
Learn more about calculating SIP Returns
Which SIP is best for 10 years?
For long duration such as 10 year or more, One can adequate risk in their Mutual fund investments. Thus mix of equity mutual fund SIP is best for 10 years.
One can go for Large Cap Equity Mutual fund, Mid and Small Cap mutual fund for SIP purposes. Even people who are willing to take some more risk can also go for thematic fund, sectoral fund too.
Best SIP Plan for 10 year investments
- Mirae Asset large Cap
- Canara Robeco Bluechip Equity Fund
- Kotak Emerging Equity Fund
- Kotak Bluechip Fund
- Nippon India Value Fund
- SBI Contra Fund
Want to Cancel your SIP – Top 3 Easy Ways to Cancel SIP in a Click
Conclusion
LIC SIP or Mutual fund SIP are both are very lucrative option to invest in. But one should evaluate the best option on the basis of his/her own needs. The person looking for safe returns than one can invest in safe schemes such as PPF, NSC, KVP, SSY or SCSS or some other schemes such as bonds etc.
If the requirement is insurance than one can go for term insurance plans.
However if you are looking only for investment than nothing better than SIP. I hope that I have answered the query which is better LIC or mutual fund.
Read more about how to become crorepati with 5000 SIP
How 10000 SIP can make you rich?
If you have still more queries do let us know about it by leaving a comment.
