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ULIP Or ELSS? Which Is Better?

Updated On Sep 13, 2021

While ELSS and ULIP are distinct, they do share some similarities. Both ELSS and ULIPs, for example, address long-term investment needs while also providing tax benefits to the investor. Both ULIP and ELSS plans have a lock-in period and provide equities exposure. The differences, however, are in terms of tax benefits, particularly after the new budget's changes. Furthermore, there is a clear distinction between the loading and costs associated with both ELSS and ULIPs. So, how do you decide which is better and put an end to the ULIP vs. ELSS debate?

Differences Between ULIP And ELSS

Below are a few of the differences between ULIP and ELSS:

1. Tax Benefits

Section 80C of the Income Tax Act of 1961 exempts premium payments from taxation. In addition, under Section 10(10D) of the Internal Revenue Code, maturity benefits are tax-free.

Under Section 80C, money invested in ELSS is taxed. In addition, under the Long Term Capital Gains (LTCG) tax regulation, annual returns of up to INR 1 lakh are tax-free.

2. Flexibility

ULIPs makes it simple to toggle between funds. This implies you can shift from equity-oriented to debt-oriented funds and likewise depending on the economic conditions.

In an ELSS, there really is no amount of flexibility in swapping funds. The full sum is put into equity funds.

3. Transparency

Transparency is often lacking in ULIPs.This is given the difficulty of deciding where your money should be invested.

ELSS provides total transparency. You have a thorough understanding of where your money is invested.

Must Read: Top 5 Tips To Choose Life Insurance Riders

4. Risk And Returns

ULIPs are risky investments that do not guarantee a high return. This is due to the fact that the returns are largely determined by market performance.

ELSS carries a high level of risk, and the returns are based on the market and the fund manager's performance.

5. Liquidity

After the five-year lock-in period in ULIPs expires, the money invested is accessible.

After the three-year lock-in period in ELSS is completed, the funds are available.

6. Applicable Charges

In ELSS, fees such as policy administration fees, premium allocation fees, mortality fees, and so on apply.

In ELSS, the exit load and fund management charges are specified in the SID and are relatively simple to comprehend.

7. Investment Objective

ULIPs provide not only investment benefits but also tax relief and life insurance coverage.

ELSS funds are professionally managed funds that provide you with diversified equity investments.


ELSS is a good option for those looking for a short-term investment plan with quick returns. Returns on equity markets are higher than those on other investment instruments. However, to get the most out of them, you must invest in them for a long time.

So, with an ELSS SIP, you can invest small amounts over a shorter period of time with low volatility risk and high returns. Furthermore, ELSS provides maximum transparency by allowing you to monitor the performance of your funds in real-time. This type of investment is ideal for young investors who do not rely on investment income for their livelihood.

ULIPs, on the other hand, provide both insurance and investment benefits. No other investment instrument combines the benefits of life insurance with the goal of generating wealth through market returns.

However, because of multiple charges and high fund manager commissions, the return potential of ULIP is quite limited. Over the course of the five-year lock-in period, the ULIP returns are expected to be between 8 and 10%.

Also Read: How To Know Which Rider is Suitable For Myself?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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