“Life is a matter of choices”, says John Maxwell. The choices we make affect every aspect of our lives. A significant choice or decision we need to make as adults is to invest wisely. A secure future is the key to a happy present. Unless we plan a little, we cannot enjoy the perks of life in our present.
However, with so many companies, plans, and conditions, the process of making the right choice could seem to be a bit arduous. An excellent way to make this easy and smooth is to consult a financial advisor or do thorough research.
To help you get started, let’s discuss two of the most popular plans available in the market – ULIP vs ELSS. Equity Linked Savings Schemes (ELSS) is an equity fund that is purely a mutual fund investment scheme. Unit Linked Insurance Plans (ULIPs) on the other hand, provide the perfect balance of an insurance policy and market investment. Although both are tax-saving schemes, there isn’t anything common between them. Here is a breakdown of the differences you will notice:
What is ULIP?
ULIP is an insurance plan offering benefits of investments as well as insurance. Some part of your premium goes to market-linked funds, and the other part is used for insurance coverage, offering wealth growth and insurance coverage under one roof. ULIP also allows investors to choose from plans such as equity, debt, etc., as per their risk appetite and goals.
What is ELSS?
ELSS are the tax saving mutual funds schemes that combine investments and tax deductions under section 80C. The plan offers a lock-in period of 3 years. It offers high returns and tax savings, which is beneficial for long-term investors.
Difference between ULIP and ELSS
ULIP vs ELSS are very similar in many aspects, but there are differences that the investor should know before buying them to make informed and smart decisions. Let’s talk in detail about the Difference between ULIP vs ELSS:
1. Insurance v/s Investment
ELSS is a tax-saving mutual fund with fixed charges, and you have no control over where your money will get invested. There is no insurance provided with ELSS. On the other hand, ULIPs are a market-linked product that offers the dual benefits of insurance and investment. You can choose between investment avenues and can easily switch between those depending on life stage goals/market movements.
2. Returns and Benefits
ELSS and ULIPs offer substantial returns and tax savings under Section 80C of the Income Tax Act 1961. However, with ULIPs, your returns on investment after maturity (5-year lock-in) are exempt from tax under Section 24 (b). In contrast, ELSS returns are taxable under LTCG or Long-Term Capital Tax gains.
3. Lock-in Period
ULIPs show returns only when invested for a longer time frame. This means your money isn’t liquid for the lock-in period of five years, as opposed to an ELSS, which has a three-year lock-in period.
4. Charges
In ELSS, there is a single charge applicable to the investment, whereas, in ULIPs, various charges are applied to your premium before investing the same into different avenues. These charges include fund management charges, fund switching charges, fund administration charges, etc.
5. Flexibility
ULIPs allow investors to switch and invest between hybrid, debt, and equity funds. Investors can choose to divert funds at their convenience. ELSS, on the other hand, is pretty rigid and does not allow this flexibility to investors.
6. Tax Benefits
The amount you invest in ULIP provides a tax deduction under section 80C. However, the profits you earn are taxable. Meanwhile, if we talk about ELSS, LTCG above Rs. 1 lac is taxed at 10%. Here, you can decide between ULIP and ELSS based on tax benefits.
That’s our analysis of Elss vs ULIP, Which team are you on? Be sure to check with a trusted advisor or do a comparative study online for ULIPs and ELSS plans before you make your decision.
ULIP vs ELSS: Comparative Analysis
The comparative analysis of ULIP vs ELSS is mentioned below in the table to make it easier to understand:
| ELSS | ULIP | |
| objectives |
|
|
| returns | The returns depend on the schemes but lie under 12-14% | Returns depend on the combination of equity, debt, etc. |
| Lock–in period | 3 years | 5 years |
| Liquidity | High | Low |
| Charges applicable |
|
|
| Regulated by | SEBI | IRDA |
| Loyalty Additions | Not Applicable | LA is provided if the investor continues the policy till the end of the tenure and is provided as per the terms and conditions. |
| Transparency | Completely transparent | Managed by fund managers |
| Risk | High risk | It is high-risk but offers life cover. |
Conclusion
ELSS vs ULIP are fantastic options for investors seeking to grow their money in the future. Both plans offer high returns, diverse options, and tax benefits in their unique way. The pros and cons are associated with both plans. In the end, the choice of Elss vs ULIP entirely depends on your goals, requirements, and other aspects. Learn about ULIP vs ELSS properly and make informed decisions.
