ULIP vs ELSS Mutual Fund

Are Mutual Funds (ELSS) better than ULIPs (Investment Plan)? Not Always. Let's Find out

What is ULIP?

ULIP stands for Unit Linked Insurance Plan. It is a type of life insurance product that combines life insurance coverage with investment options. With a ULIP, a small portion of the premium paid by the policyholder goes towards providing life insurance coverage, while the remaining amount is invested in various investment funds such as equity, debt, or a combination of both. The policyholder has the flexibility to choose the investment funds based on their risk appetite and financial goals. ULIPs offer the potential for higher returns compared to traditional insurance policies, but they also come with market risks.

What is ELSS?

ELSS stands for Equity Linked Savings Scheme. It is a type of mutual fund that primarily invests in equity and equity-related instruments. ELSS funds offer tax benefits under Section 80C of the Income Tax Act in India, making them a popular choice for tax-saving investments. These funds have a lock-in period of three years, which means investors cannot redeem their investments before the completion of this period. ELSS funds are known for potentially offering higher returns compared to other tax-saving investment options like PPF or NSC.

Key Differences :

ULIP (Unit Linked Insurance Plan) and ELSS (Equity Linked Savings Scheme) are both investment options that offer the potential for high returns. However, there are some key differences between the two:

​Parameters​​​	ULIP (Unit Linked Insurance Plan)	Mutual Fund (ELSS)
Primary Objective	Wealth Creation and Insurance Cover	Wealth Creation
Duration	Mid - Long term, 5 years lock-in period	Mid and Long-term as per investor's choice
Tax Benefits​	* Premium paid is qualifies for tax deduction u/s 80C ✅ *Maturity amount is tax exempt	* Qualified for tax deduction u/s 80C ❌ Returns are taxable at 12.5%
Insurance Cover	✅ Available	Not Available
Expenses or Expense Ratio	❌ Ranges from 1.35% - 2.2%	✅ Approximately 0.5% - 1.82%
Other Charges Know more	⚠️ Mortality charges,  Premium Allocation charges,  Policy Admin charges, Commission,  Switching charges, Surrender/  Discontinuance Charges,  Other charges (specific to policy)	✅ None
Payment Mode	You need to pay a premium at regular intervals or pay a lump sum.	You can invest through SIP or lump sum.
Risk	Market Linked (not secure)	Market Linked (not secure)
Lock-in period	ULIPs have a lock-in period of 5 yrs.	✅ ELSS have a lock-in period of 3 yrs.
Regulatory Body	✅ Insurance Regulatory and Development Authority of India (IRDAI)	✅ Securities and Exchange Board of India (SEBI)

Summary: 

ULIPs offer a combination of insurance and investment, while ELSS is a pure equity mutual fund with tax-saving benefits. The choice between ULIP and ELSS depends on your investment goals, risk appetite, and financial objectives. If you carefully analyse the charges & returns in an ULIP it gives better post tax returns compared to mutual funds (ELSS)

#WalkTheTalk : I have personally invested in the below ULIPs which have Low charges (No hidden charges) and Good Returns. So far both the funds are doing good (as on Dec'24) and I am expecting better post tax returns after 5 years Lock-in.

Best Investment Plans(ULIPs) for 2025 in India

• Max Life Online Savings plan
• HDFC Life Click 2 Wealth
• Canara HSBC Promise 4 Wealth
• Aditya Birla Capital - Wealth Smart Plus

Happy Investing,

Honvest Team.