Equity mutual funds are actively managed. The mutual fund managers actively manage their portfolios and try to beat market indices. ULIP funds are more passively managed and there is less portfolio churn. The company weights in ULIP funds usually track a benchmark market index.
Diversified equity funds have more aggressive allocation to midcap companies compared to their ULIP counterparts. Therefore they are able to generate higher returns.
Even the debt ULIP funds are more conservatively managed relative to debt mutual funds, in terms of the maturity profile of the portfolio.
The fund management fees of mutual funds are higher than that of ULIPs. The fund management charges for ULIPs are capped at 1.35%. Total expense ratio of mutual funds is capped at 2.5% for the first र 100 corers of assets under management (AUM), 2.25% for the next र 300 crores, 2% for the next र 300 crores and 1.75% on the balance AUM. However, if 30% of new gross inflows are from tier 2 cities, then the AMCs are allowed to increase their expense ratio by 30 bps. On an average fund management charges for ULIPs are 120 – 130 bps less than average mutual fund expense ratios.