Introduction
Investors can pick from a wide range of investment possibilities in the market depending on their interests. Finding the right investment tool to help you reach your financial objectives appears more challenging. The PPF (personal provident fund) and unity linked insurance plan (ULIP) are two common investments that reduce taxes.
A ULIP is a special type of investment choice that enables you to place a small amount of funds into a mutual fund or insurance coverage, and you can later benefit from the increase in the value of your investment.
However, to assist you in developing a lifestyle of saving for the future, the Public Provident Fund (PPF) offers long-term investing opportunities. With this, you must wonder which investment is better: PPF or ULIPs? Let's look at different investment plans to know an appropriate investment option.
Unit Linked Insurance Plan
A unit-linked insurance plan (ULIP) is a type of life insurance that makes investments in a certain amount of the money (premium) you pay in market-related securities. With a lock-in period of five years, it combines the advantages of insurance and investments in a single exclusive product.
When the premium paid for a ULIP is below 10 percent of the amount covered, you can avail of ULIP tax benefits under Section 80C of the Income Tax Act, 1961. The funds can be invested in debt, equity, stocks, bonds, or a combination.
Public Provident Fund
The Indian government's Public Provident Fund (PPF) program was introduced in 1968. It offers secure investment possibilities and is a steady investment choice with a fair interest rate and tax-free earnings.
Any PPF calculator may be used to determine the return following the PPF has reached maturity. You can learn how much money you will gain by investing in one of these funds using the PPF calculators.
Difference between ULIPs and PPF
Before deciding on an investment, you must investigate its potential aspects. It also happens to be further connected to your different financial objectives. Below are the key differences based on different criteria:
Investment Purpose
A ULIP is an insurance product that covers both insurance and investment. PPF provides safe and tax-effective investment opportunities for long-term financial goals or post-retirement earnings.
Lock-in Period and Withdrawal
The ULIP and PPF plans have a lock-in period of 5 and 15 years, respectively. Following the lock-in period, you are allowed partial withdrawals from ULIPs. In contrast, PPF partial withdrawals are only permitted for five years; after serving for 15 years, you can get a full redemption.
Investment Amount
For ULIP, the premium amount is determined by the ensured amount, the policyholder's age, employment, and other variables. Whereas PPF investments have the lowest and highest annual limits of Rs. 500 and Rs. 1.5 lakhs, respectively.
Charges
The charges or fees associated with ULIPs comprise premium allocation, mortality, administrative, and fund management fees. For PPF, apart from the account opening fee of Rs. 100, there are no further charges.
Risk Protection
ULIPs offer insurance policies that provide a death benefit to family members in case of a policyholder's death. There is no risk coverage for PPFs. However, because the government backs them, they offer a secure investment alternative because they have fixed interest rates.
Tax Advantages
Additionally, you can exclude up to Rs. 1.5 lakhs under Section 80C from your taxes for PPF investments.
Conclusion
You can choose between investing in ULIPs or PPFs after comparing them. Think about your financial requirements before investing in any investment product. Long-term returns from ULIPs are acceptable regardless of specific risks.
Additionally, ULIP offers the advantages of investing in one and a life insurance policy. Before reaching any final decisions regarding your assets, if you are hesitant, you can always get professional guidance from a financial counselor.
