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Start investing now or. Download link sent. Tax Saving Made Simple. Start Tax Saving. Was this article helpful? Have a query? Well, the only link between the two is that they are financial products and you can save income tax by investing in them. The key parameter which differentiates these two is perhaps their nature. ULIPs are sold by insurance companies and offer the benefit of insurance coverage along with investment.
If you opt for this plan, your premium will be partly used for life insurance, while the rest would be invested in stocks, bonds, or other instruments. ELSS is a diversified mutual fund that invests in the stock market. Another difference between the two is the lock-in-period. Although the lock-in period of ELSS is no more than three years, to enjoy the full benefits you may hold it for a longer period. As for ULIPs, the lock-in period is 5 years, but the investor should continue with the plan till the term of the policy to get better returns.
Which one is the better of the two when it comes to saving tax? Both these plans come with the benefit of deduction from taxable income up to 1.
If you are considering ULIP, you would have the option of changing the ratio of amounts invested in various instruments, such as debt and equity. In the long run, this benefit would be beneficial as it will allow you to change the mix of investments according to the risk acceptable at different life stages. For example, if you are young, you could invest higher proportions in equity. As you age, you should focus more on less risky avenues like debt. Also, if you expect the market to fall in the next few months, you can get out of equity and switch to debt.
When it comes to ELSS, there is no such switching benefit, and you will not be able to change anything for three years. But if you want some income during the tenure of the ELSS, you can always choose the dividend option. Well, that depends on your needs. If you would like to combine insurance and investment at the same time and can invest for a longer period, your best bet would be ULIP.
Otherwise, ELSS is the way to go.
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