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  • ULIPs Vs. ELSS: Which one to choose after the budget announcement?

    Published on March 24, 2020

    Investments can be an essential aspect of your financial planning. The primary benefits of investments can be the growth of wealth as well as provision of returns. Due to these advantages, many of you might opt for investments in the right financial product. Although there are various tools, such as Mutual Fund (MF), Public Provident Fund (PPF), National Pension Scheme (NPS), the popular investment vehicles, such as a Unit Linked Insurance Plan (ULIP) and Equity Linked Savings Scheme (ELSS) have garnered attention after the recent budget announcement in 2020.

    A ULIP plan and the ELSS scheme are market-linked products, which can be different from one another. Although both these investment vehicles can provide a set of features that differ from each other, there have been debates after the budget announcement about which investment tool can be beneficial for you. Before you decide to purchase either of the two options, let’s understand the meaning of a ULIP plan and the ELSS scheme in detail:

    What is ULIP?

    A ULIP policy is a single integrated plan, which club’s investment and insurance under it. Due to the dual-benefit of a ULIP policy, you can safeguard your loved ones in your absence as well as get involved in the capital markets. While the insurance component can provide death benefits to your family members after your demise, the investment element can let you garner returns based on market performance. Although a ULIP policy is market-linked, you can control the risks as well as secure your invested capital from market volatility.

    What is ELSS?

    ELSS is an equity-linked investment product that can ensure the accumulation of your funds as well as generate high returns. Typically, you should invest in ELSS based on your short-term goals. Since it has a lock-in period of three years, you can easily achieve your financial goals, such as buying a new house or a car, planning a vacation, and so on. As an investor, you can opt for ELSS with the help of a systematic investment plan (SIP) or lump-sum payments.

    With a better clarity about the meaning of both these investment products, let’s proceed further to understand how you should choose between a ULIP plan and ELSS. Given below are the parameters that can help you to decide which investment product between the two can be beneficial after the budget announcement:

    1. Coverage

    The ULIP insurance can provide death benefits to your family members that can help them with financial sustainability in the long run. However, you might not be eligible to receive financial coverage under ELSS since it is a pure investment product.

    1. Fund options

    A ULIP plan, as well as ELSS scheme, can allow you to select between equity funds as well as debt funds based on your risk appetite. However, ELSS might restrict your returns based on your selection of fund and risk appetite. Under a ULIP policy, you can switch between equity and debt funds to secure your money from market fluctuations.

    1. Returns

    Returns can be a crucial component under ELSS as well as a ULIP policy. Both these investment products can offer returns based on your fund choice and risk tolerance. If you choose an equity fund based on your high-risk appetite, you can obtain relatively high returns and vice versa.

    1. Tax benefits

    A ULIP plan can score over ELSS when it comes to the provision of tax benefits. While a ULIP plan can provide tax benefits as per Section 80C and Section 10(10D) of the Income Tax Act, 1961, ELSS can let you claim deductions under Section 80C of the Income Tax Act, 1961.

    To sum up, a ULIP investment and ELSS can differ from each other in various aspects. Although both these investment products can provide a separate set of benefits and features, a ULIP plan can prove beneficial after the budget announcement. ULIPs can be useful for you in the old tax regime as well as the new one. Besides, the flexibility, convenience, and affordability of a ULIP policy can let you choose it over the ELSS scheme.

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