ULIP vs. ELSS which is a better investment option in 2025
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Though ULIP or Unit Linked Insurance Plan and ELSS or Equity Linked Saving Scheme vary from each other and serve different insurance purposes, they still add to the confusion of consumers when it comes to making a choice. To see what works best for you, it is important to align your purpose/goal of the investment with both the plans to confirm which one would work in your case.
Though ULIP and ELSS are two diverse policies, they have certain similarities too, such as:
- Both these policies are long term plans which serve long term investment purposes of policyholders
- Both the plans allow tax benefits to the insured
- Both have lock-in period and allow equity exposure
However, the key difference between the two comes in the form of terms and conditions of tax benefits. Also, there is a difference in terms of costs and loading charges involved in both the policies. Let us consider the two plans to be able to select the best one suiting your needs.
ULIP vs. ELSS – Key Differences
Below are some differences between ULIP and ELSS plans:
| Differences | ELSS | ULIP |
| Aim of plan | These are professionally managed funds | Offer dual benefit of investment and life coverage |
| Return on Investment | Can vary depending on scheme | Can vary depending on investment combination chosen |
| Lock-In Period | 3 years | 5 years |
| Tax Deduction | Available under 80C | Available under 80C |
| Liquidity | High | Low |
| Charges | Fund management, exit load etc. | Policy administration, premium allocation etc. |
| Transparency | Fully transparent | Flexible and transparent |
| Risk | High risk | High risk (less as compared to ELSS) |
| Loyalty | No loyalty additions offered | Loyalty additions offered |
| Regulator | Regulated by SEBI | Regulated by IRDA |
Taxability under ULIP vs. ELSS
When it comes to taxability both ULIP and ELSS allow tax deductions under section 80C.
ULIP allows tax exemption of up to INR 1.5 lakh under section 80C. However, if the insured surrenders the policy before the 5 year lock-in period, the amount will be taxable.
In case of ELSS, the policyholder receives tax benefit of up to INR 1.5 lakh under section 80C. Here the policyholder can keep investing even after the lock-in period of 3 years.
What is ULIP? Is it a Better Investment Plan?
ULIPs are dual purpose insurance plans that also serve the investment purpose of investors. Here, a certain amount of the sum assured is invested in the market to enhance wealth. The policyholder can choose any plan to invest, from among the various plans such as equity, debt, hybrid funds etc. They can even switch between funds.
ULIPs are good plans when it comes to long term investments. One can meet their financial goals in the long run with ULIPs such as buying a house, marriage of children and so on. These policies offer better returns as compared to Fixed Deposits and many other investment plans.
Things to know About ULIP
ULIPs are unique plans because they allow both the benefits of investments and insurance.
- In the beginning of the plan, the premium paid for ULIP policy is used to meet the insurance needs of the policyholder as well as other policy related expenses
- Later in the plan, the premium amount paid by insured is divided between investments (in various plans) and for coverage of life insurance
- ULIP policy involves certain charges for managing fund, for allocation of premium, mortality charges as well as administration charges etc.
What is ELSS ?
ELSS is a mutual fund that comes with a lock-in period of three years and is regarded as a diversified scheme of equity. Offered by Mutual Funds in India, the plan allows tax benefits under section 80C of Income Tax Act, 1961. However, the returns earned from ELSS are taxable. The money under an ELSS is generally invested in the capital market in stocks. An investor can earn returns in the range of 14- 20% or more every year under this high risk plan depending on the scheme invested.
Despite being a type of mutual fund, there are some differences between an ELSS and Mutual Funds in other categories such as SIP, Equity Mutual Fund etc. The key variations are in the form of tax benefits received and lock-in period.
Things to know About ELSS
- An investor can invest an unlimited amount in ELSS but the tax deduction is available only up to INR 1.5 lakh. Further, the returns on investment are also not exempted from tax
- The investor can continue with the ULIP investment even after the lock-in period of 3 years
- ELSS is a high-risk option of investment with high returns as compared to other tools of investments such as FD, PPF etc.
- People looking for short lock-in period plans with greater returns can invest in ELSS
- There are differences between ELSS vs. Mutual Fund in other categories like SIP, Equity etc.
Author Bio
Paybima Team
Paybima is an Indian insurance aggregator on a mission to make insurance simple for people. Paybima is the Digital arm of the already established and trusted Mahindra Insurance Brokers Ltd., a reputed name in the insurance broking industry with 17 years of experience. Paybima promises you the easy-to-access online platform to buy insurance policies, and also extend their unrelented assistance with all your policy related queries and services.
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