Unit Linked Insurance Product (ULIP) and Equity Linked Saving Scheme are not the same.
There are entirely different with different benefits, though one common benefit is that they both offer tax benefit under Sec 80C of the Income Tax Act.
Here is the difference between ULIPs and ELSS
|Insurance||Has insurance component||No insurance|
|Charges||A host of charges including policy administration charge, fund management charge, mortality charge etc.||No such charges. What you invest is fully deployed.|
|Returns||Tends to reduce returns because of charges and insurance.||Higher returns, but no life insurance|
|Sec 80C benefits||Qualifies for tax rebate under Sec 80C||Ditto for ELSS|
|Taxation of returns||Income earned is fully exempt.||Income earned is fully exempt.|
|Lock-in||5 years||3 years|
ULIPs or ELSS? Which to buy
Let us first understand the Unit Linked Insurance Plan or ULIP. If you decide to invest Rs 1 lakh every year, in the 1st year, the fund will invest barely Rs 93,000-95,000.
This is because, there are a whole lot of charges like mortality charge, policy administration charges. Read more on all the charges of ULIPs
So, you have already lost Rs 5000-7000, but you will get insurance. But, if you already have insurance, you do not need this product at all.
In that case, the ELSS would be much better given the fact that it would deploy the full amount of Rs 1 lakh. However, under the ULIP you have choice of placing the money in a debt fund, but, in the case of ELSS, the money is invested in equities.
So, your returns can be higher or lower depending on the market conditions and the timing. As far as taxation and other aspects are concerned, both the instruments offer you tax benefit under Sec 80C of the Income Tax Act.
Also, the profits of the returns earned from both the instruments are tax free under the Income Tax Act. So, there is so quite some difference between the ULIP and ELSS.
So, which should you invest in?
If you have adequate insurance, we suggest you skip the ULIP. There are a host of charges that are associated with this product, especially in the first year and your entire amount is not deployed.
So, you lose a lot on various charges. ELSS on the other hand parks the entire money, which makes it a better proposition. However, equity investments are risky, though you may also end-up making more money.
Under ULIPS, you have the choice between debt and equity funds and could opt for the safer debt funds.