ULIPs vs ELSS: Which is the better investment option?

 ULIPs vs ELSS: Which is the better investment option?

Gone are the days when investments were the most feared part of your financial planning system. According to a survey, many Indians are investing regularly, which in turn has increased the scope for the investment sector. Although investments can be linked to the market, you might opt for it due to the growth of your funds and returns.

Today, there are two most popular investment choices that can allow you to make money in the market. A Unit Linked Insurance Plan (ULIP) and Equity Linked Savings Scheme (ELSS) can ensure your participation in the capital market. However, you might fail to understand which amongst the two can be a better choice for you. Before making a selection between the two, let’s first understand the meaning of both these investment tools in detail:

What is ULIP Plan?

A ULIP plan is a dual-benefit product, which can protect your family members financially as well as let you receive returns on your investments. Since it can be a mix of investment and insurance, you can actively participate in the capital markets without compromising the financial security of your loved ones. Additionally, a ULIP investment can allow you to accumulate wealth to meet your life goals, such as buying a new house or a car, starting a new venture, and so forth.

What is an Equity Linked Savings Scheme (ELSS)?

As the name suggests, ELSS is an equity-linked financial product. Since it is directly linked to the market, it can allow you to invest in different market instruments that can guarantee capitalisation. Moreover, you can expect relatively high returns as compared to other investment products such as Public Provident Fund (PPF), Fixed Deposit (FD), and so on. The high returns can depend on your selection of funds, invested capital, and risk tolerance.

Since investment is a common element between ULIPs and ELSS, many of you might assume that both these options are similar to one another. Although ULIPs and ELSS are popular equity-linked investment tools, they follow different investment approaches. Therefore, let’s go through the differences between a ULIP and an ELSS investment mentioned below:

Unit Linked Insurance Plan (ULIP) Equity Linked Savings Scheme (ELSS)
It is a mix of investment and insurance It is a pure investment product
The primary objective of a ULIP plan is to offer life coverage as well as allow your participation in the capital markets The primary objective of ELSS is to let you invest in different funds to gain decent returns
The ULIP tax benefits can be valid under Section 80C and Section 10(10D) of the Income Tax Act, 1961 The invested capital can be exempted from the payment of taxes
A ULIP plan has a lock-in period of 5 years ELSS can have a lock-in period of 3 years
It is regulated by the Insurance Regulatory and Development Authority (IRDA) It can be regulated by the Securities and Exchange Board of India (SEBI)
Under a ULIP investment, you can avail the switching feature to secure your money from market volatility Under ELSS, you can switch to SIP after the completion of the lock-in period
The returns can depend on your risk appetite, investment goals, and the selection of funds The returns can depend on your choice of funds and risk tolerance

As an investor, you can select between either of the two investment tools. Since ULIPs and ELSS provide different benefits and features, you should make a choice based on your needs. The choice to choose between these two investment products lies in your hands. Therefore, let’s understand which investment product between a ULIP plan and ELSS can be suitable for you:

  • ULIP Plan

If you are looking forward to receiving the benefits of investment and insurance under a single integrated plan, you should invest in a ULIP plan. Moreover, you can diversify your investment portfolio with a ULIP investment and secure yourself from the market fluctuations.

  • ELSS Investment

If you have short-term goals, you can invest in an ELSS scheme. Since ELSS has a short lock-in period, you might not be eligible to receive any surrender charges. Moreover, you can discontinue your funds based on your convenience.

To sum up, ULIPs and ELSS are two broad concepts of the investment sector in India. Therefore, you should research separately about both these investment vehicles in detail and choose the right one based on your investing requirements. Since investing can be a tricky business, taking professional help for guiding you through the entire procedure can be advantageous.

Elyse Sanford