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15-09-2022 |
Investors have a range of options to choose from, including stocks, bonds, mutual funds, PPF, ULIP etc. Of these, there are many options that combine the benefits of insurance and investment along with tax* savings. Today, we will talk about a ULIP plan and a PPF investment plan details and highlight the facts between them to help you make an informed decision.
What is a ULIP?
A Unit Linked Insurance Plan, or ULIP is a life insurance policy that invests a part of the premium paid by you in market-linked instruments. A ULIP policy has a lock-in period of five years. It is a unique product that combines the benefits of investments and insurance in one package. ULIPs offer taxation benefits under Section 80C of the Income Tax* Act 1961, provided the premium paid is less than 10% of the sum assured.
What is a PPF?
A Public Provident Fund or PPF account investment plan is a savings plan introduced by the government in 1968. It is a investment option where the government offers a fixed rate of return. It is one of the most popular investment options in India that offers taxation benefits too.
ULIP & PPF
- Investment purpose
A PPF investment plan is designed to help people save money throughout their working lives to create a corpus for retirement.
Required investment amount
The minimum investment amount in a PPF account is ₹500, and the maximum amount is ₹1.5 Lakh in one financial year. On the other hand, you can start investing in ULIPs with ₹500 without any upper limits.
- Charges
When you buy a PPF investment plan, you need to pay ₹100 towards the PPF account opening. This is a one-time fee, and there are no other charges associated with PPF investments. On the other hand, ULIPs attract a range of charges associated with providing life insurance and investment fund management.
- Lock-in period
ULIP plans have a mandatory lock-in period of 5 years. You cannot redeem the units before the end of this period. On the other hand, PPF accounts have a mandatory 15-year lock-in period. After the completion of the 7th year, investors are allowed to make partial withdrawals.
- Investment risks
PPF accounts have zero investment risks since the returns are backed by the government. On the other hand, the investment risks in ULIPs depend on the kind of funds they invest in – debt or equity.
- Taxation benefits
Both ULIPs and PPF are eligible for tax* benefits under Section 80C of the Income Tax* Act 1961. The maturity amount of a ULIP policy is also tax*-free under Section 10 (10D) of the Income Tax* Act 1961.
Tips for Choosing Between ULIPs and PPF
With a clear understanding of the aptness for ULIP & PPF, here are some tips to help you choose between the two based on your requirements:
- ULIPs offer life insurance coverage and market-linked investments. Hence, choose a ULIP if you are looking for an instrument that offers insurance and investment benefits.
- While PPF accounts offer fixed returns, the returns on ULIPs can vary based on the performance of the underlying securities.
- The lock-in period of a ULIP is less than a PPF account. Hence, make sure that you assess your investment horizon before making a choice.
L&C/Advt/2022/Sep/2135
