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What Is The Difference Between ULIP And ELSS

Updated On Jan 14, 2022

Consumers' greatest prominent and effective tax-saving goal is to take advantage of Section 80C exemptions. Article 80C of something like the Income Tax Assessment act permits for a deduct of up to Rs. 1.5 lakh per taxpayer per year if the money is invested in only certain derivative derivatives.

There have been a number of business institutions that have also been recognized for this reason, and new investments in any of such can be deducted as a deductible 80C.

Some products offer a definite fixed financial return, while others provide variable yields. Bank Deposits and PPF Accounts are by far the most prevalent fixed-return vehicles, whilst ELSS Mutual Funds and ULIPs are the most prominent changeable products.

What Is The Difference Between ULIP And ELSS

What Is The Distinction Between ULIP And ELSS?

Below are a few differences between ULIP and ELSS:

  • The Long-Term Capital Gains Tax (LTCG)

Long Term Capital Gains refer to any investment that you keep for longer than a year, as well as any earnings you make after that. These are taxed at 10% in the case of ELSS, but not at all in the case of ULIPs. When making a decision, the investor should keep in mind that the amount of taxes paid should not be the sole consideration. It is preferable to pay taxes on INR 420 in profit rather than INR 100 in tax-free earnings. In the same vein, it's worth noting that, in comparison to ELSS, ULIPs often require more than ten years to deliver comparable returns, while also requiring consistent beginning loads. ULIPs have no advantage over ELSSs when it comes to the LTCG tax.

  • Transparency When It Comes To Your Investment

ULIPs are not only more complicated than mutual funds, but they are also less widely followed and have little data available. All of this complicates the process of selecting the best ULIP for you. Unlike ULIPs, Mutual Funds are known for being virtually entirely transparent in the sense that there are no hidden expenses, no arbitrary allocation of your money, no beginning costs, and the profile is completely accessible to the investor's examination. Any investment is a stab in the dark without this transparency.

  • Investing And Assuring At The Same Time

Investing and insurance should be kept separate, as a general rule. There are several reasons for this, the most important of which is that it prevents the investor from having a comprehensive grasp of the investment or insurance's cost-benefit ratio. In ULIPs, for example, the assurer deducts charges for life insurance (mortality charges), administrative expenses, and fund management fees from the premium paid, leaving just the remaining cash to be invested. Only the portion of the premium that is invested in a fund must be considered when evaluating the return generated by a ULIP and thus comparing it to another investment. 

  • Lock-In Period

In comparison to ULIPs, which have a statutory 5-year lock-in period, ELSSs have a shorter 3-year lock-in period, providing more liquidity. Only from the standpoint of tax planning, you can receive ten tax benefits from recycling the same ELSS over the course of 30 years, compared to six in the case of ULIPs. Not only does this help with tax planning, but it also allows you to re-allocate your cash more aggressively.

  • Premium Payment Flexibility

ULIPs require the investor to make annual premium payments until the premium payment term is reached. With ELSS, however, there is no such compulsion. Investors with specific investing plans/limitations may benefit greatly from this flexibility. Equity Linked Savings Schemes (ELSS) were the only instrument that came to mind when tax deductions were mentioned until recently. Unit Linked Insurance Plans (ULIPs) have become another alternative worth considering since the Union Budget of 2018-19, with no tax on long-term capital gains (vs. 10% for ELSS) and the tax deduction under Section 80C remaining intact.

Conclusion

Because they are an insurance product, ULIPs provide life insurance to the beneficiary in the case of the policyholder's untimely death. ELSS, of course, does not provide this type of insurance.

ULIPs combine insurance and investment features, allowing you to earn market-linked returns while also providing life insurance to your family in the event of your death. Furthermore, the benefits of ULIPs over ELSS as a tax-advantaged investment choice are indisputable.

Do read - 5 Tips To Get Better Returns With Your ULIP

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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