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ELSS Versus ULIP – A Comparison


VFN Team - May 25, 2018 - 0 comments

ELSS Versus ULIP

Here is a detailed comparison between ELSS and ULIP:

Equity Linked Saving Scheme

Equity Linked Saving Scheme or ELSS is a well known tax saving mutual funds scheme where an individual can save upto Rs. 1.5 lakh in a financial year under Section 80C. It is an equity oriented investment. It has the shortest lock in period of 3 years with long term capital gains over 1 lakh being taxed at the rate of 10%.

ELSS helps in making sense of investment planning in an individual for the purpose of tax savings and wealth management.

ELSSs are equity schemes that invest mostly in equity or stocks. Investing regularly would transmit discipline to your financial life. It would also save you from the last moment problem of saving taxes before the end of the financial year. 
Our recommendations of tax-saving mutual fund schemes haven’t changed from the beginning. These schemes are consistent performers and have generated superior returns in the long-term.

Other investment options like National Savings Certificate and Public Provident Fund permitted under Section 80C have a longer lock-in period. Two, tax saving mutual funds invest mostly in stocks. This makes them an ideal investment option to create wealth over a long period.

Unit Linked Insurance Plan

A unit linked insurance plan (ULIP) is an investment product that provides for insurance payout benefits. ULIP offerings are primarily concentrated in India. The investment vehicle requires a premium payment which is invested in investment products for capital appreciation.

A unit linked insurance plan (ULIP) is an investment product that provides for insurance payout benefits. ULIP offerings are primarily concentrated in India. The investment vehicle requires a premium payment which is invested in investment products for capital appreciation.

ULIP is an investment plus insurance product where one part of the investment is used for ensuring the investor, while the other part is invested in the products of his/ her choice. Investors can choose to invest in equity, debt, hybrid, or money market funds through ULIPs. Of the amount invested in ULIPs, a contribution of up to ₹150,000 can be claimed as the tax deduction under Section 80C of the Income Tax Act. These investments have a lock-in of five years. An investor can choose to switch from equity to debt or hybrid as per his investment objective during the lifecycle of the investment.

 

 

ULIP

ELSS

Investment

An insurance-cum-investment product.

An Equity mutual funds which invests in shares related investments

Returns

The return depends on the market fluctuations.

The returns are not fixed and are completely dependent on equity market’s performance.

Objectives

A product that gives leverage to enjoy investment benefits along with tax relief with life coverage.

A professionally managed fund that gives benefits from diversified equity investment.

Liquidity

Money invested can be withdrawn only after 5 years of investment.

Amount Invested can be withdrawn any time.

Lock in period

There is a lock-in period of five years

There is no lock-in period

Regulating Authority

IRDA

SEBI

Tax Implication

Investment exempted from taxation u/s 80C and returns exempted u/s 10(10D) provided life coverage is minimum 10 times of annual premium.

Investment non- taxable u/s 80C and return exempted from tax under Long Term Capital Gain tax rule.

Risk

High risk, capital and return not guaranteed but life coverage is guaranteed.

High risk, return depends on the performance of the broader markets and fund manager.

Transparency

Lacks fund transparency as to where the money is getting invested

Transparent and full details available about stocks held by the fund.

Charges

It includes mortality charge, fund management fee, administration expenses etc.

Large portion of premium goes to insurance and small portion goes to investment in the initial years.

There is only one type of charges i.e. expense ratio and fund management fee upto 3%.

Investment Mix

In both Debt market and equity market

In equity market only.

switch option,

The ratio of invested amount in different funds (equity, debt, hybrid etc) can be altered.

 

There is no such option and you can’t touch the investment before the lock-in period.

 

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