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Should I buy ULIP or ELSS?

You should always invest in equity mutual funds to achieve long-term financial goals that are at least five years away

I have been asked to buy Bajaj Allianz Future Gain ULIP as the costs involved are very low for online investors. I plan to invest in mutual funds (balanced funds and debt funds) as well. I am 25 years old and I am new to investing. Can you please tell me whether I should go for the ULIP or whether I should add ELSS to my mutual fund portfolio?
- Parth Parikh

You should always keep your insurance and investment needs separate. Never buy ULIPs for investment needs. They come with insurance and investment elements, and they fail on both counts. They offer very little insurance cover and they are also not a great investment choice.

You should buy a life insurance cover only if you have financial dependents. The basic idea behind buying a life cover is to ensure that the insurance cover would be able to generate enough money to take care of the financial needs of your dependents. If you have financial dependents, you must buy an adequate life cover. Opt for a pure term insurance product as it is the cheapest way to buy life insurance cover.

You should always invest in equity mutual funds to achieve long-term financial goals that are at least five years away. You may start with Equity Linked Savings Scheme (ELSS) or tax planning mutual fund schemes. For more, read: Your first mutual fund.

Since you are a young investor, here are few things you should before you embark on your investing journey: set aside a sum that would cover your living expense of three to six months as a contingency fund and buy a health insurance cover for you.

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