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ULIP vs ELSS
The selection of ULIP vs ELSS can be considered one of the most crucial steps for Indian investors who are interested in creating wealth and getting tax benefits, too. Although ULIP and ELSS qualify for Section 80C, there are completely different purposes served by the two. ULIP plans offer insurance along with investment, whereas ELSS offers investment without insurance. As per 2026, when there will be new tax laws and behavioural changes in investors, this becomes even more important.
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- ULIP vs ELSS
What are ULIPs?
A Unit Linked Insurance Plan (ULIP) is a financial product that gives you life insurance and investment in one plan. A part of the premium paid towards ULIP is used for providing insurance cover, and the remaining is invested in market-linked assets.
- They offer you life insurance cover along with investment in the market.
- You are free to switch between different kinds of funds in accordance with the risk.
- They come with a lock-in period of 5 years.
- ULIP is ideal for those who require insurance along with an investment plan.
What are ELSS Funds?
An ELSS fund is a kind of mutual fund which invests mostly in stocks. They have been designed to give higher returns along with tax deductions.
- They are purely investment products.
- You can use the Systematic Investment Plan (SIP) to invest in ELSS.
- It has a lock-in period of 3 years.
- They are the best choices for those who expect higher returns.
Key Differences between ULIPs and ELSS
Here are the key differences between a ULIP plans and an ELSS scheme:
| Feature | ULIP (Unit Linked Insurance Plan) | ELSS (Equity Linked Savings Scheme) |
| Nature | It is a combination of insurance and investment. | It is a pure investment product. |
| Objective | It provides life cover along with wealth creation. | It focuses only on wealth creation. |
| Returns | Returns are market-linked but can be moderate due to charges. | Returns are market-linked and generally higher over the long term. |
| Risk Level | Risk is moderate to high depending on fund choice. | Risk is high because it invests mainly in equities. |
| Lock-in Period | It has a lock-in period of 5 years. | It has a lock-in period of 3 years. |
| Liquidity | Lesser liquidity because of lock-in and other constraints. | Better liquidity post-lock in. |
| Tax Benefits | Tax deduction under section 80C upto 1.5 Lakh and tax-free maturity under Section 10(10D) | Only offers a tax deduction under Section 80C up to 1.5 Lakh. |
| Tax on Returns | Returns are completely tax-free if premium requirements are fulfilled. | LTCG Tax at 12.5% on returns above 1.25 Lakh. |
| Charges | It includes multiple charges like mortality, allocation, and management fees. | It includes only the expense ratio, which is lower. |
| Flexibility | It allows switching between equity and debt funds. | It does not allow switching; the fund manager handles allocation. |
| Transparency | Charges and structure can be complex to understand. | It is simple and more transparent. |
| Investment Mode | Investment is made through regular premium payments. | Investment can be made via SIP or a lump sum. |
| Suitability | Suitable for investors who want insurance and disciplined savings. | Suitable for investors who want higher returns and can take market risk. |
| Ideal For | Long-term investors looking for combined benefits. | Long-term investors focused on wealth creation. |
*Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.
Tax Benefits: ULIP vs ELSS
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ULIP:
- Deduction under Section 80C up to ₹1.5 lakh
- Maturity amount is tax-free under Section 10(10D) (if conditions are met)
- If annual premium is above ₹2.5 lakh, returns are taxed like equity
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ELSS:
- Deduction under Section 80C up to ₹1.5 lakh
- Long-term capital gains (LTCG) tax applies
- Capital gains above ₹1.25 lakh are taxed at 12.5%
Important: Under the new tax regime, you cannot claim Section 80C deductions. So, the tax-saving benefit may not apply for many investors in 2026.
Advantages of ULIP Plans
- ULIP plan includes both insurance and investment within it.
- The ULIP plan offers a tax-free maturity under Section 10(10D).
- They allow switching between equity funds and debt funds.
Disadvantages of ULIP Plans
- They have higher charges as they involve multiple fees like the mortality charge and the fund management charge.
- The ULIP scheme has a long lock-in period of five years.
- Returns can be lower due to the high charges.
Advantages of ELSS Funds
- Higher return potential as they invest mostly in equities.
- They have the lowest lock-in period of 3 years amongst all other Section 80C investments.
- They have relatively lesser costs compared to other investments.
Disadvantages of ELSS Funds
- They are risky due to full exposure in the equity market.
- There is no insurance cover as they are pure investments.
- The tax benefits are subject to which tax regime you are following.
Conclusion
ULIP and ELSS can help you get tax benefits, but there are different purposes served by them. ULIPs offer insurance along with investment, whereas ELSS offers higher returns. Decide on what would work the best for you depending on your requirements.
FAQs
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Which is better, ULIP or ELSS?
ELSS is better for returns, while ULIP is better for combined insurance and investment. -
Is ELSS riskier than ULIP?
Yes, because ELSS is fully invested in equities. -
Can I withdraw money early from ULIP?
No, you must complete the 5-year lock-in period. -
Is ELSS tax-free?
No, LTCG tax applies on gains above ₹1.25 lakh. -
Should beginners invest in ELSS?
Yes, it is simple and suitable for long-term investment.
Insurers Offering ULIPs
Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or
insurance product offered by an insurer.
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˜The insurers/plans mentioned are arranged in order of highest to lowest first year premium (sum of individual single premium and individual non-single premium) offered by Policybazaar’s insurer partners offering life insurance investment plans on our platform, as per ‘first year premium of life insurers as at 31.03.2025 report’ published by IRDAI. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. For complete list of insurers in India refer to the IRDAI website www.irdai.gov.in
*All savings are provided by the insurer as per the IRDAI approved insurance
plan.
^The tax benefits under Section 80C allow a deduction of up to ₹1.5 lakhs from the taxable income per year and 10(10D) tax benefits are for investments made up to ₹2.5 Lakhs/ year for policies bought after 1 Feb 2021. Tax benefits and savings are subject to changes in tax laws.
+Returns Since Inception of LIC Growth Fund
¶Long-term capital gains (LTCG) tax (12.5%) is exempted on annual premiums up to 2.5 lacs.
++Source - Google Review Rating available on:- http://bit.ly/3J20bXZ
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.