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Why Go For ULIP Over ELSS?

Published On Nov 19, 2021

The ELSS is an equity mutual fund with a diversified portfolio. The fund invests in the stock market, selecting companies with various market capitalizations. An investor can claim a tax deduction of up to Rs 1,50,000 in a financial year for ELSS investments. A three-year lock-in period is required on certain investments.

ULIPs are investment and insurance products in which one portion of the investment is utilized to ensure the investor and the other part is invested in the investor's preferred products. Through ULIPs, investors can purchase equity, debt, hybrid, or money market funds. Under Section 80C of the Income Tax Act, a contribution of up to Rs 150,000 of the amount invested in ULIPs can be claimed as a tax deduction.

A five-year lock-in period applies to certain investments. During the lifecycle of an investment, an investor might transition from equity to debt or hybrid, depending on their investing goals.

Why Go For ULIP Over ELSS?

Below are a few comparisons between ULIPs and ELSS:

  • Tax Implications

Two of the most popular investment choices covered by Section 80C of the Income Tax Act of 1961 are equity-linked savings schemes (ELSS) and unit-linked insurance plans (ULIP). PPF, tax-saving fixed deposit, National Pension Scheme (NPS), and other investment choices are available. These investments have varying return potential and risk levels, but they all have one thing in common: a tax advantage.

  • Returns

Because an investor can invest in any combination of equity, debt, or hybrid funds, the returns can vary in ULIP.

Because the scheme is market-linked, the returns vary, but an investor can expect a return of 12 percent to 14 percent in  ELSS.

  • Tax Benefits

As previously stated, ELSS investments are eligible for a tax deduction of Rs. 1.5 lakh per year. ELSS mutual funds, on the other hand, allow you to invest far more than Rs. 1.5 lakh. The amount you can invest has no upper limit. Also, keep in mind that returns over Rs. 1 lakh are liable to a 10% Long Term Capital Gains (LTCG) tax for schemes held for more than a year.

  • Equity Investments

Long-term wealth can be built with ELSS funds. You may sync your investments to meet your financial goals at different phases of your life.

For example, you might wish to pay off your mortgage in five years, go on a world tour in ten years, or put money up for retirement in 20 years. Regularly investing in ELSS funds can assist you in achieving these objectives at the appropriate moment.

  • Lock-In Period

With a three-year lock-in term, ELSS funds are also one of the quickest lock-in durations among tax-saving alternatives. PPFs have a lock-in period of 15 years, whereas ULIPs have a five-year lock-in period.

  • Risk

When compared to a standard tax-saving option like a PPF, risk ELSS funds invest in stocks, which exposes them to more risk.


If you're looking for tax advantages and don't mind your money being exposed to the market, ELSS is a superior option, as demonstrated above. ULIPs, on the other hand, are largely insurance products that aren't as effective as investment vehicles. Any investor who keeps these two components separate and chooses a plan that fits their goals and risk profile will be successful. As a result, ELSS funds may be a good option if you wish to invest in equities while simultaneously getting tax benefits. A comparable service is offered by ULIPs. ULIPs are insurance plans that invest in the stock market to provide market-linked returns.

Also Read:

How To Buy ULIPs Online?

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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