ULIP refers to Unit Linke Insurance Plan and ELSS refers to Equity Linked Savings Scheme. ULIPs are life insurance policies with a large chunk of investment attached to it. In a way “ULIP = Mutual Fund + Term Insurance“. You can also call it, a life insurance policy where you can select where your money should be invested.
Unlike endowment or money back plan, where the investment component of the only investment option is safe debt instruments like govt. bonds or gilts, ULIPs also offer equity funds and hybrid funds as investment options as well. Endowment and money back life insurance plans are collectively called traditional life insurance, or simply life insurance plans.
Those who are familiar with mutual fund investments would know that mutual funds allocate units at NAV (Net Asset Value) to the investors. For example, if you invested Rs. 10,000 in a mutual fund and the fund NAV is Rs. 10, you are allocated 1000 units in the fund against your investment.
Similarly, ULIPs also assign units to their investors against the invested money. Also, there is an inbuilt term insurance cover too for the policyholder. Thus the name, ‘Unit Linked Insurance Plan.’
ELSS needs little introduction, though. ELSS is simply an equity oriented mutual fund, which allows investors to claim deduction under section 80C.
Comparison of both ELSS and ULIP is shown below
We can see that ULIP has additional charges which affects its return.