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ULIPs or ELSS? Which is a Better Tax-Saving Investment Option?

Adhil Shetty

Q: Hi. I’ve yet to exhaust my 80C deduction limit and looking for tax-saving investment instruments. I’m confused between ULIPs and ELSS. Which one do you recommend? – Sameer Luthra.

A: Hi Sameer. It’s good to invest in tax-savers to reduce your tax burden. However, tax saving should be the secondary objective of investing. You should ideally invest in instruments that are aligned with your financial goals, risk appetite, and liquidity requirements.

Now coming to your confusion between ULIPs and ELSS. Yes, these two qualify for tax deduction benefit of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. But then these are very different products. While ULIPs come with insurance and investment benefits, ELSS are pure investment tools. ULIPs carry higher investment charges than ELSS. Also, ULIPs invest in equity and debt assets while ELSS means investing only in equity class. The lock-ins for ULIPs and ELSS are 5 years and 3 years, respectively. Moreover, you’ll have to invest every year in ULIPs while you can invest a one-time lump sum amount in ELSS apart from a monthly SIP plan.

So, the answer to your question lies in your financial goals. If you’re looking for an insurance-plus-investment product and are good with a long-term commitment, ULIPs could be your choice. But if you don’t have an additional insurance requirement, don’t want a very lengthy lock-in, and are looking for a pure investment option that could fetch good returns in the long-term albeit with some risk involved, you can consider investing in an ELSS fund with a good track record.

You might want to consult a financial advisor if you’re unable to figure out which option works better for you.

Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil.

The writer is CEO,, an online marketplace for loans and credit cards.