Any investment that offers tax benefits is a good investment. In India, there are several such investment options available, e.g: Unit Linked Insurance Plans, Public Provident Fund, Employer’s Provident Fund, traditional insurance plans, and several government tax saving schemes. Among these, Unit Linked Insurance Plans and Public Provident Fund (PPF) are the most sought after options when it comes to tax saving. But how does one choose between these two?
Let us discuss some feature benefits offered by these two options to help make a decision.
Both Unit linked insurance plans and PPF offer tax benefits under Section 80C of the Income Tax Act. Not only that, but the interests earned on these investments are also exempted from tax deductions. Thus, when you look solely from a tax deduction point of view, there is not much difference between PPF and ULIP tax benefits.
When it comes to insurance coverage, a ULIP definitely has an edge over PPF. It offers the dual benefit of insurance as well as investment. On the other hand, PPF does not offer any insurance coverage.
PPF offers fixed rate on the investments. Presently, the rate of interest for a PPF in India is 8% per annum. There is also a limit on the total amount that can be saved under a PPF scheme. The maximum amount that you can deposit each year in PPF is Rs. 1,50,000 and you can enjoy a tax benefit only on this amount. Therefore, you enjoy fixed returns on PPF.
ULIP returns, on the other hand, are subject to market fluctuations. Depending on the existing Net Asset Value (NAV) of your investment units, the fund value of your policy is calculated. Depending on how well you invest your funds, the returns on investment would be calculated.
Generally, ULIPs have a lock-in period of 5 years, after which the fund value is paid to the policyholder. The policyholder can make full or partial withdrawals after maturity. However, there are certain plans that offer the option of long-term investment. At the time of choosing the plan, the policyholder can decide to opt between either these short-term or long-term plans.
Based on the above-discussed points, let us make a comparison of ULIP vs PPF for tax saving avenues.
|Insurance Coverage||Coverage offered||No insurance coverage|
|Returns||Returns dependent on prevailing market conditions||Fixed Returns|
|Liquidity||Easy liquidity as compared to PPF.||Liquidity only after completing 7 years|
As is clear from the above table, ULIP benefits clearly have an edge over PPF. However, ultimately, it all boils down to the choice of the investor. If you are looking for a safe investment over a long period with fixed returns then PPF is a good avenue to enjoy tax benefits on your investments. However, if you are willing to take some risk with your investment, along with receiving a decent insurance cover, and good returns then ULIPs are your best choice.
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