Simplifying Life Insurance in India
ELSS vs ULIP vs PPF: Which Is the Best Investment Option?
source: financialexpress
There are numerous investment opportunities available in the market for people looking to create a corpus for their retirement savings. Many of these options help investors in saving taxes alongside helping them with wealth accumulation.
Some of the most popular options include ELSS, ULIP and PPF. However, before you invest your money, know the differences between ELSS, ULIP and PPF and which is the better investment option.
What Is an ELSS?
ELSS stands for Equity Linked Saving Scheme, and it paves the path for individuals who wish to invest their money in mutual funds for capital appreciation while saving taxes. An ELSS is an equity mutual fund where the fund manager invests at least 80% of the total assets in the equity market.
What Is a ULIP?
ULIP, or Unit-Linked Insurance Plan, is an investment tool that offers investors the advantage of owning life insurance coverage and investing in the market. The premium of ULIPs is divided in two portions. The first part is for life insurance coverage and the second portion of this premium will be invested in market-related securities.
What Is a PPF?
PPF, or Public Provident Fund, is a government-sponsored savings programme started in 1968. The Government of India designed this programme to popularise the habit of saving money from one’s monthly income. It offers a fixed rate of interest, which changes annually. The current rate of interest for FY 2022-23 is 7.10%.
What Are the Differences Between ULIP, ELSS and PPF?
Below is a table illustrating the difference between three of India's most popular tax-saving investment options:
| Parameters | ULIP | ELSS | PPF |
| Minimum lock-in period | 5 years | 3 years | 15 years |
| Minimum investment amount | ₹1,500 per month | ₹500 (via SIPs) | ₹500 |
| Rate of returns | Dynamic. It depends on the percentage of equities, debt and balanced funds included in ULIP policy. However, on average, it tends to be 16%. | Dynamic, but on average, it tends to be 12% to 14%. | It can be changed in any quarter as per the Union Government’s decision. The current rate is 7.10%. |
| Risks involved | It depends on the funds in which one invests money. For example, if the investor chooses to invest in equity funds, there will be more risks than in debt funds. | ELSS are equity funds. Hence they are subjected to market-related risks. | It is a government-backed investment tool, so there are no risks involved. |
| Purpose of the plan | It will provide life insurance coverage and help you accumulate wealth over time. | ELSS will allow investors to create wealth and, at the same time, save on paying taxes. | It will help you save money and create wealth for retirement. |
| Charges | Administration charges, fund management charges, mortality charges, premium allocation charges etc. | Schemes expenses and exit load in some cases. | The banks or post office will charge you a one-time fee of ₹100 for opening the PPF account for you. |
Now that you know the significant differences between ELSS, ULIP and PPF, you can make an informed choice when investing. As an investor, you need to weigh all the factors mentioned above. Many people invest in all three options, and you can do that too. However, it would be best to consider factors like your risk appetite, investment goals, and investment horizon.
FAQs on the Difference between ELSS, ULIP and PPF
Are there any risk covers related to ULIP?
Yes, ULIP policies do provide risk covers to policyholders. In the event of an untimely death of the policyholder, the insurer will give a sum assured to the nominee. It is a unique feature of ULIP that both the ELSS nor PPF will not offer to its investors.
What are the withdrawal or redemption policies related to PPF?
Investors can partially withdraw their funds from PPF after five years of creating and investing in the PPF account. However, an investor can make only one withdrawal in a particular financial year. Investors can ultimately redeem the funds after 15 years of holding a PPF account.
Can you redeem your entire ELSS investment in one go?
If you have made your ELSS Mutual Fund investment via the lump sum route, the units will all be allotted to you on the same day. In this case, after the 3-year lock-in period, you can redeem your entire ELSS investment in one go.
Can I transfer my PPF account to another branch or office?
Yes, you can transfer your PPF account from one post office branch to another or from one bank to another. All you need to do is visit the existing bank or PO and submit an application to change the bank or branch. After this, the bank/branch will initiate the change process with due diligence. This process will take almost a week to successfully change your PPF account to a new bank or branch.
Important Guides related to Life Insurance
Disclaimer
- This is an informative article provided on 'as is' basis for awareness purpose only and not intended as a professional advice. The content of the article is derived from various open sources across the Internet. Digit Life Insurance is not promoting or recommending any aspect in the article or its correctness. Please verify the information and your requirement before taking any decisions.
- All the figures reflected in the article are for illustrative purposes. The premium for Coverage that one buys depends on various factors including customer requirements, eligibility, age, demography, insurance provider, product, coverage amount, term and other factors
- Tax Benefits, if applicable depend on the Tax Regime opted by the individual and the applicable tax provision. Please consult your Tax consultant before making any decision.
