ULIP vs ELSS Mutual Fund: Key things that an investor must know

 








Unit Linked Insurance Plan or ULIP and Equity Linked Savings Scheme or ELSS Mutual Fund are one of the investment options that helps an investor get income tax benefit on investing and beat inflation by big margin in long-term. Both are market linked but ULIP is mix of both debt and equity while ELSS Mutual Fund is 100 per cent market linked. According to experts, both investment tools help an investor get to the tune of 12-15 per cent return if the investment is for 20 years or more. But, there are some differences in both investment options that an investor must know.

Speaking on ULIP vs Mutual Funds (ELSS) Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "When it comes to tax saving, both are tax saving investment options but in ELSS mutual funds, one can get income tax exemption on up to ₹1.5 lakh investment in single financial year while in the case of ULIP, the Government of India has made it ₹2.5 lakh from this fiscal year. In ULIP there is five year lock-in while in ELSS mutual funds lock-in period is three years."

Jhaveri said that ULIP is mix of both debt and equity while ELSS mutual fund is 100 per cent equity investment. He said that ULIP maturity amount is 100 per cent income tax exempted while ELSS mutual fund maturity amount requires Log Term Capital Gain or LTCG Tax.

Speaking on ULIP vs Mutual Fund (ELSS plan) SEBI registered tax and investment expert Jitendra Solanki said, "In ULIP entry load in early phase of investment is high as it requires fund management charges along with the insurance premium payment. ULIP is an investment-cum insurance plan where the investor is insured. But, in the case of ELSS mutual funds, there are only fund management charges that one needs to pay. In simple terms, if an investor pays ₹100 in ULIP plan, he would be able to get around ₹90 to ₹95 invested while in the case of ELSS mutual fund; out of ₹100 payment around ₹97.5 would get invested."

Solanki said that an investor has an option to choose debt or equity or both while investing in ULIP and has the option to switch even during the lock-in period. Apart from this, one can increase or decrease one's equity or debt exposure from zero to 100 per cent depending upon the market movement. So, ULIP gives an option to maximise one's returns when the market is moving upward while it also helps an investor to minimise one's loss when the market is on the sliding note.

On how much one can expect to get in return if the investment is for 20 years or more both the experts said that one can expect 12-15 per cent return on one's investment depending upon the market performance in the last two years of the maturity.

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