• Which Is Better: Elss Or Ulip?

    Life Insurance
    • Reduce taxable income by up to Rs. 1,50,000 deduction under section 80C**
    • Convenient payment options - annual, half-yearly, quarterly or monthly premium payments
    • Do more with plans that offer pure protection, retirement planning and investment options

    Unit Linked Insurance Plans (ULIP) and Equity Linked Savings Scheme (ELSS) are two completely different products. While the former gives you the option of investing your money in various market instruments along with providing you insurance, the latter is used only for investment purposes. Both are tax saving instruments and the basic difference between the two ends here.

    What is a ULIP?

    Unit Linked Insurance Plans (ULIP) are an  insurance-cum-investment product which aims to not only provide you with a protective cover but also helps you maximise your savings by investing in various market instruments. If you have purchased a ULIP, you can invest your money in equity, debt, and other types of market funds. The premiums for a ULIP are slightly expensive as compared to other traditional plans since a part of your premium payment is allocated towards investing in a money market fund, while the rest is reserved for providing insurance coverage. It is recommended that in order to get good returns you must stay invested for at least 10-15 years.

    What is an ELSS?

    Equity Linked Savings Scheme (ELSS) is an equity-based mutual fund. It invests in various types of market instruments with different market capitalisations. It is considered to be one of the best market instruments for investors since it promises higher returns with shorter lock-in periods. You can continue to invest even after the lock-in period is over. ELSS carries a higher degree of risk due to which the amount you invest, and the fund you invest in will depend on your financial abilities and appetite for risks. Despite ELSS carrying a higher degree of risk, the returns it offers are high as compared to other investment tools such as PPF, Fixed Deposit etc. It also goes without saying that you also get to enjoy tax benefits if you have invested in ELSS.

    Differences between ULIP and ELSS

    It is an insurance-cum-investment product. It is a pure investment product.
    It is a product which aims to not only provide you with insurance but also help you maximise your savings by investing them in different market instruments. A product which invests your money in debt and equity-based funds.
    You get to enjoy tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, 1961. The money you invest is exempted from being taxed.
    Have a lock-in period of 5 years. They have a lock-in period of 3 years.
    You are allowed to switch from one fund to another based on your financial requirements. However, the number of switches and switching charges may differ from company to company Switching is essentially not allowed. However after the lock-in period is over, one can switch by taking the SIP route.
    Regulated by IRDA Regulated by SEBI
    ULIPs lack transparency and it is difficult to know where your money is being invested. You get full details regarding where your money is being invested.
    ULIPs can be risky in nature and the returns may not be so high. However, coverage is guaranteed. ELSS is high risk and the returns may depend on the performance of the stocks and funds in which your money is invested in.
    If you stay invested in a ULIP, you may enjoy certain loyalty additions as per the company’s terms and conditions. There are no such loyalty additions that you can enjoy.

    Which one should you choose?

    It is understood that both are very different types of products that you can avail for yourself. While  a ULIP provides insurance as well as helps you invest your money in various market instruments, ELSS is a pure investment tool.  If you are someone who is looking for an insurance as well as an investment tool, you can choose a ULIP since you get to enjoy best of both worlds. If you have already availed insurance and simply want to invest your money, you can go for ELSS.

    However, you must first properly research before deciding which one between the two is suitable for you. You must only invest based on your appetite for risks and your financial capabilities. Surrendering a ULIP mid-way can be extremely expensive as you may have to pay surrendering charges. Hence, it is always recommended that you stay invested in a ULIP for a longer period of time. ELSS, on the other hand, does not have any surrendering charges and you can exit the fund at any time. If you have long-term goals to take care of, it is advisable to go for a ULIP since your money will grow and you will also get peace of mind by being provided with a protective cover. ELSS is suitable for you if you simply want to invest your money regardless of whether you have short-term or long-term goals.

    Hence, both the products are brilliant in their own manner and do not need a comparison. In the end, you will have to decide which product is suitable for you based on your financial needs and long-term goals.

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