What are the Differences Between ELSS ULIP and Mutual Funds?

Take a look at the comparison and differences between ULIP vs. mutual fund vs. ELSS before you plan for your next investment.

7,863 Views | Updated on: Apr 08, 2025

Plan Your Retirement

Today, investing money in the right place can be tricky as so many investment options are available. Moreover, each plan or scheme claims to be the best and promises to provide the best returns possible for your investment. We know that all the product-related information is readily available online and that details are the key to making the right choice. ELSS, ULIP, and Mutual Funds - all being the top investment products of today generally confuse investors to decide what is the right option to pick out of them. So, before planning your next investment step, let’s look at the comparison of ULIP vs mutual fund vs ELSS. Before we compare these investment options, let’s understand what they are in brief.

What is ELSS?

ELSS stands for Equity Linked Savings Scheme and is a kind of Mutual Fund. It is the only Mutual Fund that allows tax deduction under Section 80C of the Income Tax Act of 1961. There are many other features of ELSS that make it an attractive investment option for many in comparison to other products

What is ULIP?

ULIP or Unit Linked Insurance Plan is an investment tool with the added benefit of life insurance. ULIP is a diverse investment and insurance tool that allows you to choose where to invest your funds and switch between them according to market trends if required. There are various advantages of ULIP that make it one of the most attractive investment choices today. Although many investors compare ULIP and Mutual Funds, both are quite different. Also, before investing, one must decide his financial goal and look for the best ULIP funds in India per their needs.

What are Mutual Funds (MFs)?

Mutual Funds are an investment tool where a company collects money from many people and invests it in bonds, stocks, money markets, and other assets to yield profits. Each investor holds a share that represents the equivalent part of these holdings.

ULIP vs mutual fund vs ELSS

Here is the comparative Analysis of ELSS and ULIP in Table

Criteria	ULIP	ELSS	Mutual Funds
Returns	It may yield varied returns, as the investors get to manage the investment among different funds like equity, debts, hybrid funds, etc.	ELSS is linked directly to the market, so the returns depend totally on the scheme choice.	Returns on Mutual Funds depend on various factors such as the portfolios and management of investments. Therefore, they cannot be predicted.
Lock-in Period	ULIP Policy has a minimum lock-in period of 5 years to reach maturity.	An ELSS has a minimum lock-in period of 3 years to reach maturity.	There is generally a 3-years lock-in period. However, it may change as per the policy.
Tax Benefits	It has various tax benefits on investments up to ₹2,50,000/annum. However, taxes are applicable on amounts invested above this value.	Generally taxed at 10% for investments above ₹1,00,000/-.	Mutual Funds have varied taxation based on multiple factors.
Liquidity options	Funds may be available after the completion of the lock-in period. However, this may vary based on policy guidelines.	Funds Are available after the completion of the lock-in period.	It can be sold as per the investors’ choice.

Difference between ULIPs and mutual funds

You must first comprehend the differences between ULIPs and mutual funds in order to acquire some perspective on them. The following are some key distinctions between ULIPs and mutual funds.

Investment objective

A mutual fund is a pure investment product with the only purpose of generating wealth that has the potential to produce respectable returns over time. However, ULIPs have the advantage of being a market-linked investment in addition to being primarily an insurance product.

Return on investment

Since ULIPs invest in equities, debt, or a combination of the two, their returns can fluctuate. Depending on the sort of scheme chosen, mutual fund returns can also vary and might be low or high.

Lock-in period

Because ULIPs are insurance products, insurers set a lock-in term for these investments that is typically five years. The majority of mutual funds, particularly open-ended mutual funds, do not, however, with the exception of ELSS funds, which have a 3-year lock-in period.

Transparency

ULIPs are now quite open thanks to recent regulatory changes introduced by the IRDAI; they now give up-front information on money allocation. Fund houses are required to provide a thorough report on the mutual fund investments in the case of mutual funds. Fund houses are advised to give comprehensive information on asset allocation, portfolio holdings, active fund manager(s), fees charged, etc., with regard to various schemes by financial markets regulator SEBI.

Taxation

Tax on mutual funds: Depending on the holding duration, equity funds are subject to LTCG (long-term capital gains) and STCG (short-term capital gains) taxes of 10% and 15%, respectively (plus any relevant surcharge and Cess). After indexation, the LTCG tax rate for debt mutual funds is 20% (plus any applicable surcharge and Cess), whereas the STCG tax is determined by the investor’s income tax bracket. Under Section 80C of the IT Act, 1961, equity-linked savings scheme (ELSS) funds are eligible for a tax deduction of up to ₹1.5 lack.

Tax on ULIPs: Section 10(10D) of the Income Tax Act, 1961 provides that returns on ULIPs are tax-free.

Expense

An expense ratio, also known as a professional management fee and operational fee, is incurred when investing in mutual funds. Some mutual funds further impose an exit load, or fee for quitting the programme. The fees assessed for ULIPs include premium allocation fees, fund management fees, administrative fees, mortality fees, etc.

Before you make your investment move, it is suggested to do proper research. However, suppose you decide to invest in a ULIP plan. In that case, it is recommended to check the advantages of ULIP, compare the best ULIP funds in India, understand how ULIP works, and then put in your hard-earned money!

Written By :

Amit Raje

Amit Raje is an experienced marketer who has worked in various Fintechs and leading Financial companies in India. With focused experience in Digital, Amit has pioneered multiple digital commerce in India. Now, close to two decades later, he is the vice president and head of the D2C business department. He masters the skill of strategic management, also being certified in it from IIMA. He has challenged his challenges and contributed his efforts in this journey of digital transformation.

Reviewed By :

Prasad Pimple

Prasad Pimple has a decade-long experience in the Life insurance sector and as EVP, Kotak Life heads Digital Business. He is responsible for developing user friendly product journeys, creating consumer awareness and helping consumers in identifying need for life insurance solutions. He has 20+ years of experience in creating and building business verticals across Insurance, Telecom and Banking sectors

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