Mutual Fund ELSS Vs ULIP

If you are confused about whether to go with ELSS or ULIP plan, do visit the following points that differentiate the two.  

Mutual Fund (ELSS):

• Purpose: only investment 
• Min Amount: Rs. 500/-
• Payment: lumpsum and/or SIP
• Lock-in-period: 3 years
• Recommended investment tenure: > 7 years
• Premature withdrawal: not allowed before 3 years
• Expenses: expence ratio, AMC fee etc. - 1.5% p.a. appx
• Upfront charges: Nil
• Investment basket: only one multi-cap equity fund
• Choice of Funds: not available - only equity
• Flexibility: can't switch before locking period
• Expected Return: 11% p.a. appx
• Taxation: investment qualify u/s 80C
• Capital Gains: Equity LTCG applicable - @10%  after availing 1 lac exemption limit p.a. 
• Seller: mutual fund AMC
• Regulator: SEBI

ULIP:

• Purpose: investment + insurance 
• Min Amount: Rs. 5000/- p.a.
• Payment: premium contribution for at least the first 3 years
• Lock-in-period: 5 years
• Recommended policy tenure: > 10 years
• Premature withdrawal: only after 5 years
• Expenses: policy admin charges, premium allocation charges, fund management fee, mortality charges, surrender fee - 3% p.a. appx.
• Upfront charges: 5% appx. of the first year premium
• Investment basket: many from large-cap, mid-cap, small-cap
• Choice of Funds: available from equity, hybrid, debt, liquid, etc
• Flexibility: multiple switches during the policy period 
• Expected Return: 4% - 10% p.a. appx (depends on the fund category selected)
• Taxation: investment qualify u/s 80C
• Capital Gains: No capital gain tax during switch and maturity also tax-free under 10(10D)
• Seller: Life insurance companies
• Regulator: IRDA

It's always better to keep your investment & insurance separate. However, most investors lack discipline drastically. They don't continue their SIP beyond a certain point and after 3 years they just withdraw from mutual funds. Some keep on rotating the same investment amount in ELSS after the locking period to get the benefit of 80C. How your fund will grow in this case? They also don't take a separate term plan to protect against any casualty.

ULIP policy has more longevity than ELSS folio. Further, you get insurance cover as well although it is costly than a term plan. But if you lack investment discipline, then ULIP is a better option for you than ELSS. 

Wealth creation is a game of long term investment. The longer the investment horizon you have, the higher the chances of getting compounding growth. 

 

Disclaimer: Investment in securities & mutual funds are subject to Market Risk