ulip vs ppf. which is preferred when it comes to tax savings?
ULIP vs PPF. Which is Preferred When it Comes to Tax Savings?
the market offers several investment options today that work as both investments and tax-saving schemes. two popular tax-saving investments are the ppf (personal provident fund) and unity linked insurance plan (ulip). here's a brief summary of the difference between ulip and ppf.
unit linked insurance plan (ulip)
the unit linked insurance plan is a life insurance scheme that also serves the purpose of investment. the policyholder pays a premium which acts as life cover; the rest of the amount can be invested into funds of one's choice, such as debt, hybrid, or equity. it is a long-term investment plan, with a lock-in period of 5 years and goes up to 15 years.
the tenure of the policy is a key factor in the kinds of charges applied to ulips. some indicative rates are: 4% on a ulip for a 5-year tenure, 3% for 10 years, and 2.25% for 15 years. additional charges like funds switching, premium allocation, fund management, administrative fee, etc.
all ulip investments are tax-exempted under section 80c of the income tax act. under this scheme, an investor is free to switch and revise one's overall portfolio, depending on the investment cycle and risk appetite. thus, it is a way to eliminate the risk of losses.
public provident fund (ppf)
the public provident fund (ppf) is a government scheme introduced in 1968 with the objective of encouraging the habit of saving among indians. it is a widely popular investment option.
as a government-backed scheme, the ppf's interest rate is also fixed by the government. you can open a ppf account at post offices and both public and private sector banks. the minimum amount of deposit in ppf is ₹ 500; the maximum can go up to ₹ 1,50,000 in a financial year. the current ppf rate is 7.1%.
investing in a ppf creates a significant corpus for individuals and families in the long run. the ppf maturity amount is tax-exempted. another advantage is that the government allows 50% withdrawal from the ppf account from the 7th year onwards. after the first investment is made, the applicant can apply for a loan against the ppf account between the 3rd and 6th year. try a ppf calculator to estimate your returns from this scheme.
which one is better: ppf or ulip?
criteria | ulip | ppf |
|---|---|---|
type | both investment and insurance plan | investment plan |
liquidity | partial withdrawal after year 5 | partial withdrawal after year 7 |
lock-in period | 5 years | 15 years |
returns | based on market returns, investment style, and investment amount | fixed returns, as it is a government-backed scheme |
tax benefits | section 80c of the income tax act | section 80c of the income tax act |
overall, both plans are good to invest under section 80c of the income tax act 1961. but financial advisors may recommend avoiding mixing investment and insurance at the same time. make sure you analyse your financial requirements and choose wisely. to calculate your ppf returns, try this online ppf calculator.