While planning our finances, tax saving generally becomes an area of concern for us. As a result, we look for those investment avenues, which are tax-free, as well as, financially rewarding. There are three kinds of tax-free investment avenues in India, which include Exempt Exempt Exempt (EEE), Exempt Exempt Taxable (EET), and Exempt Taxable Exempt (ETE). These terms denote the tax treatment of an investment at three important stages, which are:
- Contribution stage
- Interest earning stage/accumulation stage
- Withdrawal stage
Let us try to understand the EEE category of tax-saving investment. In this category, the contribution made towards the investment avenue is exempt from taxes. The second stage is when you earn interest/growth on your investment. The amount generated as interest is also exempt from taxes. The third stage is the withdrawal stage. When the investment matures, you need to withdraw the matured amount. In the EEE category of investments, even the withdrawn amount is tax-free.
The EEE category applies to investments, which are long-term such as Public Provident Fund, Employee Provident Fund, and Life Insurance. One of the most unique kinds of investment avenues in India is the Unit Linked Insurance Plan. Popularly known as ULIPs, these plans offer you the best of both worlds: life insurance and the benefits of market-linked investments.
The various benefits of ULIP Plans are:
- These plans give you the flexibility to switch your investments between funds, which means you can choose to shift your investments between equity and debt funds based on your risk appetite and the situation of the market. Some of the other flexibilities that you can enjoy are choice of life cover, option to change premium, and the freedom to add riders.
- With increased exposure to the market, ULIPs adopt a systematic approach for long-term wealth creation. A portion of the premium is invested in life insurance while another portion is invested in market-linked investments.
- ULIPs as investment options offer liquidity. There is a minimum lock-in period of five years, after which you are free to withdraw your funds fully or partially, as per your requirements. However, it is recommended that you keep your money invested for a longer term to reap the benefits.
- Unit-Linked Insurance Plans are ideal for those who are willing to take risk. ULIPs offer you dual advantage of insurance and potential to earn high returns.
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