ELSS vs Ulip: Which Tax Saving Investment Option Suits You The Best

When it comes to choosing the best tax saving investment option between ELSS and Ulip, we are much likely to get confused as both investment instruments offer tax saving benefits. In his blog: ELSS vs Ulip, you’ll learn a few about both the investment products. Below given are some points that you should look before choosing any one of the two tax-saving investment product:

ELSS vs Ulip: What is Ulip and ELSS?

Where ELSS refers to Equity Linked Saving Schemes, Ulip is an insurance plus investment product, which is offered by insurance companies. Investors, who choose Ulip, have the option to out their money or invest in debt, equity and hybrid funds. ELSS doesn’t offer insurance and are pure investment products. The confusion between the two is probably because both make investments in equity markets and are tax-saving instruments. However, one should be clear about one’s objective and not mix insurance with investment.

ELSS vs Ulip: Charges

If you are investing in ELSS fund, all you have pay is the expense ratio or the fund management fee. It is not charged separately and adjusted in the scheme’s NAV. Investor also get to enjoy transparency while making investment, as they check and know the amount invested and calculate return.

wealthfund ELSSOn the other hand in Ulips charges the investor in several ways, which also includes the premium allocation charge, agent commission and renewal expenses; insurance cost, policy administration charge, fund management fee; service tax deduction and fund switching charge. Rest of the money is invested or put in the market funds

ELSS vs Ulip: Tax Benefit 

In case of tax benefits, investor can benefit from both the instruments, where under Section 80C, both offer deduction of up to Rs 1.5 lakh. Based on EEE mode, investment, maturity amount and capital gains on ELSS funds are tax-free. Though, it comes with lock-in period of only three years, results in long-term capital gains, with zero taxation on equity investment. In case of Ulips, if investor withdraws before lock-in period, he/she has to pay tax on claimed deduction. Maturity amount is not tax-free. Tax-free maturity amount can only be availed on the death of policy holder.

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