Choosing the right financial product to invest your money in is important. If one chooses an unsuitable product for themselves, the consequences of the same can be felt even years later. That is why a solid understanding of the different types of investment products available in India is the first step in financial planning. Two types of products, ULIPs and the PPF, are popular amongst all types of investors for the multitude of benefits they offer. While ULIPs are linked to insurance, PPF is essentially a government-backed savings scheme. Are you wondering which would be the ideal option for you – to buy a ULIP plan online or invest in a PPF? Let this article help you out.
What is a ULIP?
A ULIP is an insurance plan that also provides the policyholder a chance to invest in market-linked instruments or debt funds of their choice. The premium of a ULIP goes towards building your life cover as well as towards investment. The investment aspect of a ULIP is similar to the structure of a mutual funds scheme – money from various policyholders is pooled together and invested in lump sum amounts into the market.
A look at the benefits of ULIPs may help you understand why you should invest in ULIP plans over PPF.
Major benefits of investing in ULIPs
- Life coverage along with investment
The life cover from your ULIP provides financial security to your loved ones in case an unfortunate event strikes, and you are no longer around to take care of your loved ones. A ULIP also reduces the hassle of having to manage two different products – an insurance policy and an investment scheme – by merging them into one product.
- Sustainable lock-in period
A ULIP has a lock-in period of five years, which is ideal to help you inculcate a level of financial discipline. The lock-in period also helps your investment gain a substantial amount of returns. You can enjoy these returns with the help of partial withdrawals once the lock-in period is over.
- A variety of investment options
One can invest in equity, debt, or hybrid funds as per their risk appetite. The returns from each kind of fund can be estimated with the help of a ULIP calculator.
- Tax deductions and exemptions
With the help of your ULIP premium, you can save taxes up to Rs 1.5 lakhs under Section 80C. Plus, the various pay-outs are also tax exempted.
What is a PPF?
PPF, or Public Provident Fund, is a savings scheme introduced and backed by the government with an aim to encourage people to save more. Earlier, one could open a PPF only via the post office. Now, however, one can go to a private or public bank and get a PPF account opened. The lock-in period of a PPF is fifteen years. So, one cannot cancel or exit the scheme until they have completed this period. Just like the ULIP calculator, a PPF calculator also helps you create a PPF strategy that brings the result you want within your budget.
If you are thinking whether a PPF may be a wiser option for you over ULIPs, then do take a look at the benefits of PPF as well.
- Risk-free
Since PPF is backed by the government, it is substantially risk-free. On the other hand, a ULIP policy holds some amount of risk, especially if the amount is invested in equity funds.
- Stable returns over a long duration
PPF is ideal for those who are looking for stable returns accumulated over a long duration. The rate of interest on PPF changes on a yearly basis. For the financial year 2022-2023, the rate of interest lies at 7.10%.
- Partial withdrawals after 7 years
Even though the lock-in period may seem like a long duration, it is important to remember that one can make partial withdrawals on their investment after 7 years.
- Immense tax benefits
Thanks to Section 80C, PPFs come with the coveted ‘E-E-E’ badge when it comes to tax benefits. So, the investment you make yearly, the interest earned, and the amount accumulated at maturity, are all tax-exempted.
If you are still in doubts and wondering whether and why you should invest in ULIP plans or opt for a PPF, then a consultation with a financial expert can also help.
Tax benefits mentioned are subject to amendments in tax laws. Terms and conditions may also apply. Ensure to read the document wordings carefully before you buy a ULIP plan online or open a PPF account.