ULIP vs ELSS: Which one is better for you?

By: |
August 24, 2018 5:04 PM

Equity Linked Savings Scheme (ELSS) and Unit Linked Insurance Plan (ULIP) are two popular investment schemes which offer tax deduction under Section 80C of the I-T Act.

ELSS vs ULIP: Which is better? (PTI)

Equity Linked Savings Scheme (ELSS) and Unit Linked Insurance Plan (ULIP) are two popular investment schemes which offer tax deduction under Section 80C of the I-T Act. Both the savings instruments serve different purposes. On the one hand, ULIP is a mix of investment and life insurance which is offered by life insurance companies. On the other hand, ELSS is an equity fund. But which one is better for you?

Equity Linked Savings Scheme (ELSS):

ELSS is an equity mutual fund. The scheme invests in the capital market and selects companies with different capitalizations. In one financial year, an investor can claim a tax deduction of up to Rs 1.5 lakh against the investments made in the scheme. The lock-in period for these investments is three years. Another thing to note is apart from tax deduction, the returns are tax-free, whether it is dividend income or capital appreciation.

ELSS is one of the most trusted investment instruments which offer tax benefits and delivers higher returns in a short period of time. However, before you go all gung-ho over the scheme, it is noteworthy to know that ELSS is higher when compared to fixed deposits and PPF.

Unit Linked Insurance Plan (ULIP):

Unit Linked Insurance Plan, commonly called ULIP, is an investment plus insurance plan. Under ULIP, one part of the income is used to ensure the depositor while the other part is used to invest in the product of the individual’s choice. Subscribers can invest in equity, hybrid, debt or money market funds via ULIP. The contribution of up to Rs 1.5 lakh is exempted against the investment of ULIP under Section 80C of the I-T Act. The lock-in period is of five years. An investor can switch from equity to hybrid or debt as per his/her goals during the time period of investment.

ULIP vs ELSS: Which one is better?

ULIP (Unit Linked Insurance Plan)

ELSS (Equity Linked Savings Scheme)

Lock-in period

ULIPs have a mandatory lock-in of 5 years

ELSS have a mandatory lock-in of 3 years


The returns can vary because an investor can choose any combination of equity, debt, hybrid funds in his investment.

As it is market-linked, the returns can vary depending on the scheme selected but a depositor can expect a potential return of 12-14%.

Tax benefits

The invested amount offers tax deduction under Section 80C, but the gains are taxable.

EEE (Exempt Exempt Exempt) – The invested amount is exempt from taxes at the time of investment, accumulation, and withdrawal.


There are complex and multiple charges like policy administration charges, premium allocation charges, mortality charges, etc.

Exit load and fund management charges are specified in the SID clearly and are easy to understand.


Funds can be available after the lock-in of 5 years subject to further policy conditions.

Funds will be available after the lock-in of 3 years.

Now you decide which one suits you the best.

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