Capital growth, safety and tax-saving benefits. Any investment worth its salt will fulfill these criteria. While ELSS (Equity Linked Savings Schemes) and ULIP (Unit Linked Insurance Plans) emerge as the winners, how do you choose one over the other?
With a comprehensive analysis of both instruments, this article will help you in making a decision backed by understanding.
ULIP vs. ELSS: A comparative analysis
ULIP is a future-focussed investment that combines wealth building and insurance. ULIP aims to generate returns for long-term financial goals, without compromising the dependants’ financial security, in case of the investor’s untimely demise.
ELSS is a type of mutual fund that combines wealth creation with tax saving. These funds are commonly referred to as tax-saving mutual funds.
This table will help you understand the difference between ELSS and ULIP.
| Unit Linked Insurance Plans (ULIPs)
| Equity Linked Saving Scheme (ELSS)
|
| Investment Type | Offers investment and insurance
Invests in Equity, debt, hybrid and money-market instruments
| Purely an investment based product
A type of mutual fund which invests in mostly equity and equity-related securities
|
| Investment Objective | Gives you the benefits of wealth creation, insurance coverage, and tax relief | Diversified equity investments give you higher benefits plus tax saving
|
| Regulatory Body | Insurance Regulatory and Development Authority of India (IRDAI) | Security and Exchange Board of India (SEBI)
|
| Lock-In Period | Five years
| Three years
|
| Tax Benefits | You may get tax exemptions and ULIP benefits under Section 80C and 10(10D) of the Income Tax Act of 1961.
These ULIP benefits are subject to the provisions made under the IT Act and may be amended periodically
| Tax deductions up to a maximum of ₹ 1.5 lacs under the Income Tax Act of Section 10(10D) and Section 80C
|
| Flexibility | Offers flexibility to switch between funds based on market performance and policyholder's changing financial goals
| Does not allow switching funds
|
| Applicable Charges | Charges like policy administration, premium allocation, mortality, etc. may apply, which could be higher than ELSS, depending on the plan
| Typically charges around 2.5% of the assets under management (AUM) per year
Additionally, fund management charges, transaction charges, and exit load may apply
|
| Liquidity | Mandatory five-year lock-in period, only post which funds are accessible. One can only withdraw partial amounts of the matured fund.
| Funds can be retrieved only on completion of the three-year lock-in period
|
| Risk and Returns | Can be high risk as the returns depend on market performance.
ULIPs have a balance of returns where you can manage the market returns.
| Risks are higher as investments are primarily in equities and equity-related securities
Returns are linked to market performance and are 12%-14% approximately
|
ULIP vs. ELSS: Pros and Cons
ULIP Benefits:
Double benefit of investment plus insurance.
Tax benefits on the premiums paid under Section 80C of the Income Tax Act, 1961 up to INR 1.5 lakh. The maturity amount is also tax-free under Section 10(10D).
Flexibility to switch investments from equity-oriented funds to debt funds and vice versa to maximise returns and protect against market volatilities.
Lock-in period of five years which lets you earn higher returns due to the long-term investment horizon.
ULIP Disadvantages:
Multiple charges reduce the actual investment amount.
Susceptible to market risks as ULIPs invest in market-based instruments for higher growth but one can always keep a track of market & where you can manage the market returns by switch funds option.
5-year lock-in period can be a hindrance especially during emergencies.
ELSS Benefits:
High returns as the entire amount is invested in equity-oriented funds.
Tax exemption on maximum of up to INR 1.5 lakh every year. Also, returns in the form of Long-Term Capital Gain (LTCG) for up to INR 1 lakh are tax exempt.
ELSS investments can also be done through SIP.
ELSS Disadvantages:
Even though ELSS has the potential to offer high returns, there is no guarantee as these depend on market performance.
ELSS or ULIP: Which to choose
ELSS and ULIP are both worthy investments as they offer tax benefits and the potential for high returns. Choosing between ELSS or ULIP depends on your risk appetite, current commitments, and financial goals.
The equity investments of ELSS offer high returns in a shorter period of three years. Investing through SIPs help balance market volatilities. Lower fund charges gives you more ROI. But remember, equities while offering high returns are also high risk. So, ELSS is a good saving instrument for those whose livelihood does not depend on its returns.
On the other hand, ULIPs benefit you with wealth creation and insurance coverage, but the various fund charges limit its returns potential. The risks are low to moderate, and the plans can be customised to your needs.
IndiaFirst Life offers a number of very high return and safe ULIP plans, like IndiaFirst Life Radiance Smart Investment Plan, which assures insurance payout as well as wealth creation.
IndiaFirst Life Wealth Maximizer lets you grow a systematic and exclusive portfolio with multiple investment strategies and flexible options.
The IndiaFirst Money Balance Plan is a ULIP that helps create wealth for the future while limiting your exposure to market fluctuations.
Whether it’s ELSS or ULIP, be sure to speak to your financial advisor to make the right decision.
Customers 
Distributor 
Employee 
