ULIP v/s ELSS v/s NSC: All about these investment choices
What's the story
Unit-linked insurance plans (ULIPs), equity-linked savings schemes (ELSS), and national savings certificates (NSCs) are popular investment choices in India. Each of these has its own benefits and drawbacks, making them suitable for different kinds of investors. Knowing how they perform can help you make better investment decisions. Here is a look at the performance of ULIPs, ELSS, and NSC to help you choose the right investment.
#1
Understanding ULIPs
ULIPs are a combination of insurance and investment. A part of the premium goes into life cover, while the rest is invested in market-linked funds. ULIPs offer flexibility in choosing funds and switching between them. However, they come with higher fees compared to other options. The lock-in period is five years, but investors can withdraw after this period under certain conditions.
#2
Performance of ELSS
ELSS funds invest primarily in equities and provide tax benefits under Section 80C of the Income Tax Act. They have a minimum lock-in period of three years, which is shorter than ULIPs or NSCs. Historically, ELSS has given higher returns than traditional savings instruments, but it also comes with higher risks owing to market volatility.
#3
Insights into NSC
NSC is a government-backed fixed-income investment with a tenure of five years or 10 years. It guarantees returns at fixed interest rates, which are revised periodically by the government. Unlike ULIPs and ELSS, NSC does not offer any market-linked growth potential, but provides safety against capital loss. It also qualifies for tax deductions under Section 80C.
#4
Comparing risks and rewards
When comparing risks and rewards, ULIPs offer market-linked growth potential but come with higher fees and risks due to market fluctuations. ELSS provides high return potential over the long term but is subject to equity market risks. NSC offers guaranteed returns, with no risk of capital loss, but lower return potential compared to equity-linked options like ELSS or ULIPs.