Best ELSS Funds
3Yr. Returns
5Yr. Returns

ELSS vs ULIP – Comparison of ELSS Funds with Unit Linked Insurance Plans

Updated on

ElSS funds and ULIPs are quite different from each other, equally lucrative in their purpose. To choose between the two, you must align your financial objective and goals to the schemes and select the one that suits you the best. Let’s simplify this dilemma of ELSS Vs ULIP through the following topics.

  1. Tax implications of ELSS and ULIP
  2. What is Equity Linked Savings Scheme (ELSS)?
  3. Things to Know About ELSS
  4. What is Unit Linked Insurance Plan (ULIP)?
  5. Things to Know About ULIP
  6. Comparative Analysis of ELSS and ULIP
  7. Why Invest with ClearTax?


1. Tax implications

Equity Linked Savings Scheme (ELSS) and Unit Linked Insurance Plan (ULIP) are two investment options from the list of investments that qualify for tax deduction under section 80C of the Income Tax Act.  The other investment options are Public Provident Fund (PPF), Tax saving Fixed Deposit, National Pension Scheme (NPS), etc. These investments offer different return opportunities and have different risk categorization but one common denominator connects them – tax benefit.

2. What is an Equity Linked Savings Scheme (ELSS)?

ELSS is a diversified, equity mutual fund. The scheme invests in the capital market and selects companies with different market capitalizations. In a financial year, an investor can claim a tax deduction of up to ₹150,000 against investments made in ELSS. These investments have a mandatory lock-in period of three years. 

3. Things to Know About ELSS

a. You are free to invest any amount you like in an Equity Linked Savings Scheme. For tax deductions, contributions of only up to INR 1,50,000 will be considered under the Income Tax Act, Section 80C.

b. ELSS is one of the best investment options for investors which offers tax benefits with potentially higher returns and short lock-in periods.

c. The returns on Equity Linked Savings Schemes are not tax-exempt starting this year post the changes detailed in the recent Budget.

d. You can continue to invest in this scheme even after the completion of the lock-in period of 3 years.

e. The risk involved with ELSS is higher when compared to a Fixed Deposit or a PPF but the returns are potentially higher as well.
ELSS funds

4. What is Unit Linked Insurance Plan (ULIP)?

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 their investment objective during the lifecycle of the investment.


5. Things to Know About ULIP

a. ULIPs offer both protection of insurance and the power of investment. This sets ULIPs apart from other traditional investment policies.

b. In the initial years, the premium of the ULIP payment goes towards meeting one’s insurance needs and policy expenses.

c. Post these deductions, the premium is divided between providing you a life cover and buying fund units for investment.

d. The expenses involved in ULIP investment includes premium allocation charges, administration charges, mortality charges and fund management charges.
Unit linked insurance plan

6. Comparative Analysis of ELSS and ULIP


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
Returns  The returns can vary because an investor can choose any combination of equity, debt, hybrid funds in his investment. Being market-linked, the returns depends on the scheme, but an investor can expect an approximate return of 12-14%.
What are the tax benefits? The invested amount offers tax deduction under Section 80C, but gains are taxable. LTCG under ELSS is taxed @ 10% over and above Rs. 1 lakh
What are the charges applicable? 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.
What about liquidity? 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.

As can be seen above, ELSS offers a better package if you are investing for tax benefits and are comfortable with the market exposure of your capital. ULIPs, on the other hand, are primarily insurance options but not as efficient as investment tools. Any investor will do well by keeping these two aspects separate and by picking a plan that aligns with their goals and risk profile.

7. Why Invest with ClearTax?

a. ClearTax helps you choose handpicked and lucrative funds recommended by experts

b. Go for our 100% paperless investment that saves on cost, time and effort

c. Your investment proof will be sent to your email instantly

d. Save up to Rs. 46,800 on taxes every year

Invest Now!


Invest in the Best Mutual Funds

Invest in 7 Mins | Free | 100% Online | Easy to Use | Safe