ELSS Funds Vs ULIP – Which Way to Go to Save Tax?

by Sachin

When it comes to zeroing down on tax-saving measures under Section 80C umbrella up to Rs 1.5 lakh per annum, the chances are that most taxpayers opt for the one that is easy to grasp. The most popular tax-saving instruments available in the market are ELSS funds and ULIP. 

However, Which Way To Go – ELSS Or ULIP? 

People who invest in market-linked securities to save tax might have at least once thought about this question. To find the answer, they may need to go through a lot of information sources, which might create confusion. First of all, both the financial instruments are identical in a way that they provide tax-deductible benefits under section 80C, but that’s where the parallels end.

If you want to make an informed investment decision, you must have an objective in mind and know about ULIP and ELSS in detail. Reputable financial advisory companies can guide you to select the right investment options that match your long term goals.

Let us talk about these two financial instruments in detail.

What is ULIP?

Unit Linked Insurance Plan, better known as ULIP, is a popular investment plan that is offered and distributed by many insurance providers. ULIP’s uniqueness is its insurance coverage along with an additional advantage of investment opportunity.

Mainly, the amount of premium charged is divided in such a way a part of it is invested in different instruments while the rest is used to provide life cover. Under the life cover, if the investor expires during the policy tenure, the nominee will receive the assured sum.

What is ELSS?

Equity Linked Savings Scheme (ELSS) is a type of mutual fund that encourages investing in equity markets while concurrently saving taxes on investing up to Rs. 1.5 lakh according to section 80C of the Income Tax Act, 1961. 

ELSS funds have a lock-in period of three years. While investing money in ELSS, you need to know that they fall under the open-ended equity group. It means that equity spends are as much as 65 per cent of the capital. The rate of return in ELSS is volatile, which means it depends on how well the stock market performs over a long time.

ELSS Funds vs ULIP: Which One to Choose? 

Both of them offer tax savings under Section 80C of the Income Tax and come with various highlights. Here are some facets that are worth looking into before making a choice:


1. Lock-in Period 


One important thing to consider is how long your money has to remain invested in a product—the ELSS funds rates above ULIP on this aspect for its brief three-year lock-in. When you invest in ELSS via SIP (Systematic Investment Plan), you should be mindful that each SIP phase will need to complete the three-year lock-in before the investment can be redeemed. Mostly, each SIP instalment will have a definite maturity date.


2. Return of Investment


It’s well known that equity as an asset class not only beats inflation in the long term but also helps to create wealth. When you analyze ELSS funds with a period of over ten years, the estimated returns for the sector would likely to fall inside the CAGR range of 10-12 per cent. It is comparatively better than investing in ULIP.

3. Wealth Creation



Investing money helps in creating wealth if it is done for specific financial goals. When you are planning to invest money into the ELSS funds or ULIPs, you should set financial targets other than tax savings as well. You can choose between ELSS funds and ULIP according to your financial needs in future. 

Tax savings seems like an easy and straightforward parameter to consider while investing money. However, there are many twists and turns. It is imperative that you have your financial goals in mind when choosing the right financial instruments. If you need assistance, it is wise to ask for help from reliable financial advisory firms like FinEdge than making investment mistakes. While all of the tax-saving tools help reduce income tax liability, remember that the right mix of them is essential to help you achieve your financial goals.

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