A good investment option is one that helps you generate more capital and keeps your family financially secured in the future. Equity-Linked Savings Scheme (ELSS) and ULIPs (Unit-Linked Insurance Plan)are two such investment vehicles that can cater to both these needs. So, which one should you choose? Which investment option is better suited for your investment portfolio? Which type of investment will cater to your financial needs in a better way? Let’s explore that with the help of this article.

What is ELSS?

ELSS funds are a type of mutual funds that invest a majority of their assets in equities and equity-related securities. These mutual funds have a mandatory lock-in tenure of three years. These mutual fund investments are professionally managed by a mutual fund expert known as fund manager. Investment in ELSS mutual funds are eligible for a tax deduction under Section 80C of up to Rs 1.5 lac as mentioned in the Income Tax Act, 1961*. For this very reason, these funds are popularly known as ELSS tax saving mutual funds. ELSS tax saver mutual funds offer investors with the dual benefits of wealth creating opportunities and tax-saving benefits.

What is ULIP?

ULIPs are investment options that offer the best worlds of investment and insurance. It’s an investment product that offers both investment and life insurance policy in one product. A part of the investment is used to get a life insurance policy and the rest is invested in different types of investment. Just like ELSS funds, ULIPs also offer tax deduction of up to Rs 1.5 lac u/s 80C of the Income Tax Act, 1961. ULIPs have a lock-in period of five years.

Difference between ULIP and ELSS

Following are some of the differences between ULIP and ELSS:

Aim To provide investors with investing opportunities and life insurance policies in one investment product. ELSS mutual funds provide investors with dual benefits of capital appreciation opportunities and tax deduction benefits.
Returns Dependent on the asset class an investor chooses to invest in. Mutual fund investments are subject to market risk.
Lock-in duration Five years Three years
Charges applicable ULIPs have several charges such as mortality charges, policy administration charges, premium allocation charges, etc. Charges onELSS funds are comparatively easier to understand. Some examples of charges include exit loads and fund management charges.
Regulator ULIPs are regulated by the Insurance Regulatory and Development Authority (IRDA) ELSS funds are regulated by the Indian mutual funds regulator – Securities and Exchange Board of India (SEBI)
Risk ULIP investment plans are endowed with a certain level of risk depending on the type of investment chosen. However, one can enjoy definite life insurance cover with ULIPs. As ELSS funds primarily invest in equities, they are comparatively riskier


What is better? ULIP or ELSS?

Whether you decide to invest in ELSS or ULIP depends on your personal investment needs. Your investments must align with your financial goals, investment horizon, and risk appetite. Make sure that you do not invest in these tax saving investments with the sole purpose of saving tax. Happy investing!

*Investing in section 80C investments can help you to save tax up to Rs 46,800 provided that you belong to the highest tax slab