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ULIP vs PPF

There are plenty of investment options available in the market which serve the purpose of investment, insurance along with tax saving. To name a few - ELSS mutual funds, ULPs, PF, PPF and many more. With such a wide range of options, how does one go about searching for the most accurate and suitable plan? As an investor, it is sensible to look into all aspects of a particular investment. This should be further linked with your specific financial goal.

In this article, we will help you learn the differences between a Unit Linked Insurance Plan (ULIP) and a Public Provident Fund (PPF).

What is a Unit Linked Insurance Plan?

A Unit Linked Insurance Plan is a scheme which provides both, investment and life insurance to the policy holder. But, how does this work? When you invest in a ULIP, a part of the premium is used to provide life cover while the remainder amount is invested in money making funds of your choice - equity, debt or hybrid. The investment horizon of any ULIP scheme is set for long term (5|10|15 years). Thus, the lock-in period is also limited to 5 years.

The charges applicable for a ULIP depends upon the policy tenure. It stands at 4% for ULIPs with a tenure of 5 years, 3% for 10 years and 2.25% for policies with a tenure up to 15 years. Additional charges include premium allocation, funds switching, fund management, administrative fee, etc.

A ULIP also offers tax savings benefits. You can claim deduction under Sec 80C of the Income Tax Act, 1961 provided the premium paid towards the ULIP scheme is less than 10% of the Sum Assured. For example, if the annual premium paid is ₹1,00,000 for a Sum Assured of ₹15 lakhs, then you can claim a deduction of only ₹1.5 lakhs, that is 10% of the Sum Assured.

One can easily switch funds and revise their entire portfolio as per their risk appetite and investment style. Also, the life cover provided under a ULIP scheme eliminates the risk via suitable insurance protection.

What is a Public Provident Fund?

The PPF is a government introduced savings scheme launched in 1968. It is also considered as one of the most stable and preferred saving instruments among Indian investors. The purpose of this scheme was to inculcate the habit of savings among Indians. Being a government backed scheme, the rate of interest is decided by the government itself on an annual basis. The existing rate for FY 2018-19 stands at 8%.

Earlier PPF could only be opened via post office, but recently, they can be opened at all public and private sector banks. You can even open one online and link it directly to your salary account. The tenure of investment is for 15 years with an option to extend it for 5 more years. You can begin with a minimum investment of ₹500 or more, but no more than ₹1,50,000 per annum.

Investment in a PPF is generally for creating a big corpus over the long run. Thus, making it suitable for long term investors looking for a tax-free maturity amount. Yes, apart from the tax benefits under Sec 80C of the Income tax Act, 1961, the maturity amount is completely tax free.

Additional benefits include the option of partial withdrawal post the 7th year of investment and facility to avail a loan against the PPF amount post year 3th-6th.

Which is Better PPF or ULIP?

CriteriaULIPPPF
TypeInvestment cum insurance planInvestment plan
Lock-in period5 years15 years
LiquidityPartial withdrawal post 5 policy yearsPartial withdrawal post 7th policy year
ReturnsThe returns are market linked and depend upon the selection of investment funds and investment style.Fixed returns as decided by the Indian Government on an annual basis.
Tax BenefitsApplicable as per Sec 80C of the Income tax Act, 1961.Applicable as per Sec 80C of the Income tax Act, 1961.

Why Invest in PPF?

  • Option of a partial withdrawal post completion of 7 policy years. The maximum amount is 50% of the balance amount at the end of the 4th year.
  • A PPF account can be continued even after the maturity date, with or without any further contribution.
  • Option to extend the maturity account post 15 years.
  • Loan facility is available post 3rd year of the policy.
  • The balance accumulates is exempted from wealth tax.
  • The interest received is tax free.
  • Start with as little as ₹500 as the amount of investment.

FAQs on ULIP vs PPF

Can I deposit more than 1.5 lakh in PPF?

No, the maximum annual amount cannot exceed more than ₹1,50,000 in a PPF account.

Can I invest in PPF?

Yes, all income bearers of India can invest in a PPF account.

Is ELSS better than PPF?

There are different parameters to consider. An ELSS is a good investment option which offer high returns but comes with a high risk while a PPF offers fixed returns but comes with a low risk.

Is ELSS return tax free?

No, an ELSS attracts an LTCG of 10% of the return amount over and above ₹1,00,000.

Is it good idea to invest in PPF?

Yes, investors who have a low appetite for risk and are looking for a long term investment plan, a PPF is an excellent investment option.

Is PPF better than LIC?

PPF and LIC are two completely different funds. One provides investment while the other provides life cover.

Is SIP a good investment?

An SIP is a mode of investment and not the investment itself.

Is ULIP a good investment option?

Yes, a ULIP not only provides good investment returns, but also life cover for you and your family.

Is ULIP better than ELSS?

Yes, if you want to gain the double benefit of tax saving along with wealth creation, the ELSS is an excellent investment option.

What is the best time to invest in PPF?

The early as possible, the earlier you start, the longer the investment duration. The longer the investment duration, the higher the returns.

Which is better PPF or insurance?

These are two different financial instruments which cannot be compared on the basis of one being better than the other.

Which is better PPF or SIP?

These are two different financial instruments which cannot be compared on the basis of one being better than the other.