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  • Category: Finance and Investments

    Which is advisable to prefer, ULIP or ELSS?

    Confused between ULIP and ELSS plans of investment? Looking out for financial advice here? Find responses and suggestions from experts here.

    Yesterday I went to Axis bank where one of the executive insisted me to take ULIP plan for long term investment options. I know the ELSS scheme and it's advantages but ULIP is new to me.
    Can anyone advice me to take investment decision on ULIP VS ELSS?
  • Answers

    5 Answers found.
  • The two products are tax-saving instruments only.
    Ulip is an insurance-cum-investment product Whereas ELSS is a non insurance investment.
    Ulip is sold by insurance companies. Whereas ELSS is sold by banks and other agencies.
    Ulip investors have the option to invest in equity, debt, hybrid, and money market funds. The minimum sum assured is 10 times the annual premium (seven times if the age of entry is above 45 years). On the other hand, ELSS or equity-linked saving scheme is diversified equity funds that invest in stocks. These are pure investment instruments and don't offer any insurance.
    ULIP is good for people who want to have some assured moderate returns whereas ELSS is prone to more risk and returns may be higher but no assurance.

    always confident

  • 1. This is an example how unscrupulous agents force people to buy products not suitable for their requirement.
    2. We must remember that we must not mix up investment and insurance. These two are totally different. ULIP is basically an insurance instrument. A small fraction of the premium paid by the policy-holder is put in the market as per the ratio indicated by the policy holder. I can provide a simple example. If the monthly premium of a ULIP is Rs. 1000/-, around Rs. 350/- is invested in the market in the ratio of say 50:50 in equity and bond (assuming the policy-holder preferred that particular ration).
    3. The return of ULIP is not good. The insurance companies charge a lot from the policy-holder. Withdrawing from ULIP during the first five years would be a clear loss to the policy-holder.
    4. If you are interested to find a tax-saving instrument and seek good return, you have to invest in an ELSS fund which gives consistently better performance than the benchmark. Although ULIP is also a tax-saving instrument, the return is not good for the investor/policy-holder, simply because a large part of the premium goes for protecting the policy-holder.

    "If you are killed in action, you go to Heaven. If you win, you rule this Earth (as beautiful as Heaven). That is why, O son of Kunti, take a firm resolve and fight!"-- Shrimad Bhagwad Gita

  • ELSS is a straight one as the name explains: Equity Linked Savings Scheme. Here the amount put by the investor is invested in of the prescribed charges if any). The investment is totally subject to the normal risks and benefits associated with market investment. Till now the benefit of long term capital gains tax exemption was available. But from the latest budget LTCG tax is applicable from certain threshold of gains.

    ULIP is Unit Linked Insurance Scheme. It is a combination of investment and insurance in a single plan. A pre specified portion of the investment is used as insurance premium. Earlier the most popular one was the ULIP from Unit Trust of India. Now there are different ULIPs run by various providers. So ULIP is insurance cum investment. Risk is covered during investment period subject to the premium and the terms specified. The return comes from the units purchased from the investment part.There is almost nil formalities for the insurance application in ULIP as it is inbuilt in that.

    However, generally practically, the lock in period of ELSS is relatively less in comparison with ULIP for reasonable return. So if your aim is more return from short term with tax saving, ELSS is better. However if your aim is affordable insurance and some reasonable return during a longer and specified period, then ULIP is suggested. In case you are already covered well under insurance then ELSS is better.

  • If you are looking for investment options that will also enable you to get tax deduction then ELSS and ULIP, both will qualify for deduction under section 80C.
    However the acronym has already been explained to you so I will not explain that again. Coming straight to your question about the benefit of both the schemes then it is totally dependent upon personal choice.

    So before you decide just check that you have a long term insurance policy. If yes, then you can skip ULIP as a premium paid again is of no use as the same will not fetch you return on your investment and also bank has a margin in the amount paid as premium for insurance.

    Personally, I never consider insurance as an investment option which shall fetch returns. Insurance should only be long term with coverage of atleast Rs. 1 crore for family. Other insurance schemes shall be avoided and the money should be invested in some other options which fetch you good returns.

    ELSS on the other hand is pure savings scheme with investment in mutual funds which are safest at present. It will not only get you deduction under section 80C but also earn you good return in near future.

    Just to let you know every banker is now also a sales agent and they have a commission fixed on every policy they sell by convincing the customer about its benefit.

    I am finance background and have learned this very well that in matters of money no-one is your friend and never gives you any advice for free or for your benefit.
    You and only you can choose wisely. So give it a thought before believing the banker.

    Choose well and invest wisely.

    Live before you leave.

  • For investment, ELSS is always better when compared to the ULIP. ULIP is an upfront loss of money for the charges that are levied on the investor. Laymen do not notice it because they charges are cut in the form of units from the investment amount. After the charges are deducted, the remaining amount is then invested.
    Just to give you a glimpse of the types of charges- there are premium allocation charges, fund management charges, administration charges, partial withdrawal charges, fund redirection charges and so on.

    In fact, for insurance purposes please do consider the simple term insurance plans as they are much cheaper with much bigger coverage than compared to the ULIPs.

    Also, if you are looking beyond getting the tax benefit, they are many other categories of mutual funds you can consider which are more actively managed than ELSS.
    Please be cautious of the advice given by relationship managers and others at the bank. They are under a lot of stress to sell insurance and earn revenue for the bank. Please take your time to research before making a decision to invest.

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