loader2
Partner With Us

What is the difference between ELSS and ULIP?

Most of you must have heard of Equity Linked Savings Scheme (ELSS) and Unit Linked Insurance Plans (ULIP). Well, the only link between the two is that they are financial products and you can save income tax by investing in them. While ELSS is a pure equity mutual fund, ULIP is a more complex product that combines insurance and investment.

Here are some of the differences between the two:

Features

The key parameter which differentiates these two is perhaps their nature. ULIPs are sold by insurance companies and offer the benefit of insurance coverage along with investment. If you opt for this plan, your premium will be partly used for life insurance, while the rest would be invested in stocks, bonds, or other instruments. Since ULIP is a life insurance policy, it offers death benefit If the insured dies during the term / duration of the policy, the nominee is paid the sum assured or fund value, whichever is higher. ELSS is a diversified mutual fund that invests in the stock market. It doesn’t offer insurance benefits and the full amount is used for investment purposes only.

Lock-in period

Another difference between the two is the lock-in-period. Although the lock-in period of ELSS is no more than three years, to enjoy the full benefits you may hold it for a longer period. As for ULIPs, the lock-in period is 5 years, but the investor should continue with the plan till the term of the policy to get better returns

Tax benefits

Which one is the better of the two when it comes to saving tax? Both these plans come with the benefit of deduction from taxable income up to 1.5 lakh, according to Section 80C. Long-term capital gains (LTCG) on ELSS is taxable on amounts exceeding Rs. 1 lakh a year. In the case of ULIPs, returns on maturity are exempt from income tax according to Section 10(10D) until 31 Jan 2021. As per the Budget 2021, If the annual premium of your new ULIP investment is more than Rs. 2.5 lakh the return that you will get will no longer be tax exempt and it will be taxed as per the equity mutual funds.

Switching option

If you are considering ULIP, you would have the option of changing the ratio of amounts invested in various instruments, such as debt and equity. In the long run, this benefit would be beneficial as it will allow you to change the mix of investments according to the risk acceptable at different life stages. For example, if you are young, you could invest higher proportions in equity. As you age, you should focus more on less risky avenues like debt. Also, if you expect the market to fall in the next few months, you can get out of equity and switch to debt. But it’s necessary to remember that you will be allowed only a limited number of free switches, after that you will have to pay a charge.

When it comes to ELSS, there is no such switching benefit, and you will not be able to change anything for three years. But if you want some income during the tenure of the ELSS, you can always choose the dividend option.

So, what’s the answer to the question about which is better - ELSS or ULIP? Well, that depends on your needs. If you would like to combine insurance and investment at the same time and can invest for a longer period, your best bet would be ULIP. Otherwise, ELSS is the way to go.

To invest in ELSS, insurance and other products, open a trading account with ICICIdirect now!

Disclaimer: The contents herein mentioned are solely for informational purpose and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon.

Most Popular

f
  • 15 Sep 2021
  • ICICI Securities

5 Most Popular Reasons for Switching Bank

In the beginning, you would hear from them quite often. But of late, you're noticing more and more signs that it's no longer working. We are referring to your relationship with your bank. Click here to read how to recognize the red flags in your banking relationship and why it might be a good time to end the bond.

  • 15 Sep 2021
  • ICICI Securities

How Intraday Trading Works? Detailed Ideas

Intraday trading in India has been gaining momentum of late. It is no longer the option of only trade pundits.

  • 15 Sep 2021
  • ICICI Securities

What is Intraday trading? A Beginner's Guide

With the advancement of technology and increased knowledge about the stock market, trading is no more a domain dominated by stock pundits.

  • 05 Sep 2021
  • ICICI Securities

Is it Good To Invest in Cyclical Stocks?

Akin to how the pedals of a cycle go up and down as it moves forward, the share price of certain stocks goes up and down in accordance with the economic cycles a country goes through. 

  • 05 Sep 2021
  • ICICI Securities

A primer on Fixed Maturity Plans

If you happen to have some surplus funds which you don’t need for a specific period, but you don’t want to take the risk of investing this money in the stock market, you can very well put this money in a Fixed Maturity Plan or FMP. 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Equity Mutual Fund

You must have heard a lot about investing in mutual funds. But before jumping on this trend you need to assess a mutual fund scheme according to your goals, investment horizon, risk profile, liquidity needs and many other factors to find a suitable match. 

  • 05 Sep 2021
  • ICICI Securities

A Beginner’s Guide to Monetary Policy Tools

The Reserve Bank of India has the incredibly crucial responsibility to formulate the monetary policy. The main objective of monetary policy is to control inflation and provide a conducive environment for the country's economic growth. 

  • 05 Sep 2021
  • ICICI Securities

Buying Penny Stocks and its Risks

There is a specific category of stocks whose prices are very low and they seem to yield exponential returns. But do you know that investment in such stocks could be risky? 

  • 05 Sep 2021
  • ICICI Securities

How to Choose the Best Debt Mutual Fund?

Debt mutual funds primarily invest in fixed income securities, which include money market instruments like commercial papers, corporate bonds, treasury bills, government bonds and other instruments.

  • 05 Sep 2021
  • ICICI Securities

Tax Saving Using Section 80D

“Make your life safe and get insurance immediately”. This statement was never more relevant than the times when the pandemic threatens to wipe off the population. 

Open an Account

Sign Up for Free

+91

Please use the mobile no registered with Aadhaar.

OTP sent to +91 1234567890

Didn’t received OTP? Resend

00:30

iciciDirect-money-logo
iciciDirectMoney-App

Get Research Backed Recommendations.

Download The app now

or Scan below QR Code To download app

QRcode