ULIP VS ELSS - Not Just A Matter Of Choice!

Undoubtedly, ULIP figures heavily in the minds of investors seeking an option for tax saving because the scheme also offers life insurance cover. However, does this attraction compensate for the other benefits offered by ELSS? Read on to know how the two fare against each other

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In the recently announced Union Budget, presented on February 1, 2020, Finance Minister Nirmala Sitharaman has proposed a new tax regime that has the potential to silence the age-old question of which is the best option for tax saving. Under the proposed Income Tax slabs, which will be optional, individuals will not be entitled to exemption or deductions, including under Section 80C and 80D, LTC, housing rent allowance, among others. Our analysis shows that for someone earning up to ₹15 lakhs per year, it makes sense to be in the old regime and avail the benefits given under different sections of the Income Tax Act 1961.

Now, the harder question is which among the two is a better option – Unit-Linked Insurance Plan (ULIP) or Equity-Linked Saving Scheme (ELSS)? For obvious reasons, insurance agents believe ULIP is better while mutual fund distributors believe that ELSS is more preferable. However, in this debate, an investor is confused as to which among the two is the better tax saving option. In this article, we will try to figure out which offers better potential for tax saving and returns. We will compare both the products in terms of their different features.

Further, our comparison will also be on various fronts such as cost, benefits, returns, etc.

Asset Under Management

ULIP is one of the most popular tax-saving products in the market. At the end of March 2019 it had an asset under management (AUM) of ₹4.11 lakh crore as compared to ELSS which had ₹99,817 crore at the end of December 2019. However, although the AUM of ULIPs is ahead of ELSS in terms of absolute growth, it is way behind ELSS in terms of percentage growth in AUM. This is due to higher base of ULIPs. The following graph would help you to understand this better.