Find your suitable insurance plan
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5 min read
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:
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.
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 |
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.
Read More: Top Benefits Of Investing In Unit-Linked Insurance Plans (ULIP)
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.
ULIPs are unique plans because they allow both the benefits of investments and insurance.
Also Read: What is the meaning of absolute returns in ULIPs?
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.
Read More: 11 ULIP Charges You Should Be Aware Of
To Sum Up
When comparing ELSS vs. ULIP or ELSS vs. Mutual Fund which is better, the main distinctions come in the form of tax benefits. ULIP is an insurance cum investment fund, whereas mutual funds are professionally managed schemes operated by Fund Managers.
Further, when you compare between an ELSS and other mutual fund investments, there are differences in terms of tax benefits and lock-in period among others. So, it depends on the discretion and requirement of the investor and his/her needs to confirm which plan would suit their needs better.
Since some of these plans are highly risky, it is very important to understand them well before investing. You can even take the help of insurance and investment advisors to have a better idea of the investments you should carry on.
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Both the investment plans have their own benefits and limitations. ELSS allow more liquidity with less lock-in period as compared to ULIPs. However, ULIPs allow dual benefits of insurance and investments. ELSS are highly risky as compared to ULIP. No, ELSS mutual funds and ULIPs are different investment plans with varying differences between each other. ULIP is an insurance product, whereas ELSS is a mutual fund. ULIP is a risky investment. However, it is less risky as compared to ELSS and many other investment options. Yes, ULIPs allow tax benefit of up to INR 1.5 lakh under section 80C of Income Tax Act, 1961. Some disadvantages of ULIPS include: ULIPs have a high cost attached at the start of the plan because of the various charges levied under the plan. They are complex to understand as well.
FAQs on ULIP vs. ELSS
Which is better, ULIP or ELSS?
Is ULIP the same as ELSS?
Are ULIP risky?
Is ULIP good for tax saving?
What are the disadvantages of ULIP?
Market fluctuations don't allow much profit under ULIP if invested for a short term.
There might be switching charges levied by many investors for switching investment options under a ULIP plan
The Lock-in period of
ULIP is 5 years during which the investor cannot withdraw money.
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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