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:

*Disclaimer: Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by an insurer.

Tax Benefits: ULIP vs ELSS

1. 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

2. 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.