And hence our vote goes to ELSS…
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Reason #1: ELSS helps you keep your financial life simple
As a good principle, you should never mix insurance & investment…because if you do that, you neither get proper insurance cover nor decent investment returns.
ULIP requires you to combine insurance with investment….
When you buy ULIP, you burden yourself with a random insurance cover that does not serve your needs. Also, the various charges make it an inefficient investment vehicle.
Worse, this messes up your financial life. Alarming, isn’t it?
And that’s why it’s the number one reason we advise our readers to skip ULIP as an investment.
ELSS does not suffer from any such defect as it is a pure investment product.
Reason # 2: ELSS offers higher potential return as compared to ULIP:
Do you know that when you buy ULIP, you need to pay the following charges:
- Mortality charge
- Premium Allocation Charge
- Policy Administration Charge
- Fund switching Charge
Many of these charges get automatically deducted from your fund value…And this is why you won’t know if you don’t see the fine print in the policy statement!
These charges are like termites….they eat away the returns from your ULIP investment.
On the contrary, ELSS is a low-cost and straightforward investment which only charges you a small fund management charge….
Moreover, if you choose to invest through “direct” mode (Finbingo Mutual Fund portal offers this facility), this charge reduces even further.
This means that due to its low-cost structure, ELSS offers you an opportunity to earn a higher return for your investment than ULIP….. excellent, isn’t it?
Reason # 3: ELSS is a transparent product
The beauty of ELSS is its simplicity and transparency.
For any ELSS scheme that you wish to invest, you can quickly obtain the following details online at a click of a button:
- Scheme performance
- Portfolio allocation
- Risk parameters
- Cost structure
- Lock-in period
In a deadline filled world, this information helps you quickly compare schemes & arrive at the best scheme for yourself.
Better, you can also refer to detailed comparisons on platforms such as Finbingo which can help you zero in on the suitable scheme even more quickly.
In ULIP, unfortunately, analysing the scheme returns and performance is not that easy as the following variables impact the ultimate return that you get as an investor:
- Amount of life Insurance cover & riders opted by you
- Various charges
- Fund allocation
Reason # 4: It is much easier to invest in ELSS than ULIP:
While ELSS is a pure investment product, ULIP is basically an insurance product that bundles investment.
Buying ELSS is super-simple & entirely online. You can simply visit the mutual fund’s website, or better, an online MF platform like Finbingo & make your investments in a few clicks.
With ULIP, being primarily an insurance product, your application must undergo financial and medical underwriting. Investing in ULIP is thus, not very easy, due to the following reasons:
- If you have any previous medical history, you may have to undergo specific medical tests
- For high-value policies, you may be asked to provide income documentation
- If you plan to purchase ULIP, you may need to do multiple visits to the insurance company’s or bank’s office to fill out the various forms and declarations.
By deciding to buy ELSS, you save yourself from all the above hassle and paperwork… In a time-starved & deadline filled world we live in, isn’t that something?
Other plus points of ELSS over ULIP:
- In ELSS, you can start with a SIP of as little as INR 500. Compared to ULIP, which requires a higher upfront amount, ELSS is easy on young investors’ pockets.
- In ELSS, after the lock-in period of 3 years, you can shift to another scheme if the performance is not up to the mark without any cost. In ULIP, you cannot switch to a different scheme like ELSS. Also, change of schemes within the funds allocated for the ULIP product is chargeable.
- ELSS has a lower lock-in of 3 years as compared to 5 years in the case of ULIP.
Conclusion
- Do not mix insurance and investment. Avoid ULIP.
- For investment, find a good ELSS scheme & invest preferably through SIP.
- For insurance, buy pure term insurance.