ELSS Vs ULIP Vs PPF: Which investment instrument is most suitable for you?

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August 7, 2020 11:49 AM

There are various kinds of investment opportunities available in India, however, before you start, make sure that your investments and your goals are aligned, and you are in this for the long haul.

investment instruments, elss vs ppf vs ulip, investment avenues, tax saving investment options, tax saving investment instruments, section 80C, income tax saving, PPF, NSC, ELSS, stocks, mutual funds, SIP,Find out what these investments opportunities have to offer;

If you are planning to start investing but are confused about where to start from, you are not alone. Thankfully, there are various kinds of investment opportunities available in India, however, before you start, make sure that your investments and your goals are aligned, and you are in this for the long haul.

Having said that, if your goal is to save tax, then you could look at options like ELSS or PPF. Additionally, you could also look at ULIP, if you want to save for your retirement, which also comes with tax benefits. Keep in mind that the right investment opportunity depends on your current income and your future goals.

Here is what these investments opportunities have to offer:

Equity Linked Savings Scheme (ELSS)

ELSS is the go-to investment option for those who want to invest in mutual funds and also want to save taxes. This diversified equity mutual fund invests in the capital market and selects particular companies with different market capitalizations. ELSS comes with a lock-in period of 3 years. PPF in comparison comes with a minimum lock-in period of 15 years. Experts suggest investors should know that ELSS comes under the equity category, wherein as much as 65 per cent of the money is invested in equity. Hence, the rate of return in ELSS is dynamic and totally depends on how well the stock market performs over the invested time period. Therefore, if you are putting your money for the short-term, it can be risky and volatile. Note that, stocks have the potential to offer better returns in the long run.

An investor can claim tax saving under section 80C of Income Tax Act and get tax deductions of up to Rs 1.5 lakh against investments made in ELSS, in a financial year. Additionally, the returns from ELSS are taxed at 10 per cent, without indexation benefit, if they exceed Rs 1 lakh in a Financial Year.

Public Provident Fund (PPF)

For decades PPF has remained a favorite savings avenue for many investors, mostly because it offers tax-saving and better return. It is a safe investment option with decent guaranteed returns. PPF comes with EEE benefit (Exempt, Exempt, Exempt) under Section 80C, hence, the investment of up to Rs 1.5 lakh per year, the returns as well as the corpus after maturity are all exempted from taxation. However, it comes with a lock-in period of 15-years.

However, there are provisions where the investor can make partial withdrawals from the money invested, and also take loans after 7 years of investment. The current rate of return in PPF is 7.1 per cent, annually, revised quarterly. One of the biggest benefits of investing in a PPF account is that, as it is backed by the government, the risk factor in PPF investment is comparatively quite low.

Unit Linked Insurance Plan (ULIP)

Unit Linked Insurance Plans, as the name suggests, are investment plus insurance plans. With ULIPs, a part of the investor’s investment is used for insurance, while the remaining is invested in the products of the investor’s choice. The investment choice can also be a mix of equity, debt, and hybrid funds. Keep in mind that the rate of return can vary in ULIPs as per the investment combination of equity, debt, and hybrid funds.

The premium paid under a ULIP product is eligible for tax deduction under Section 80C. The returns from the policy after maturity are exempt from income tax under Section 10(10D) of the Income Tax Act. Additionally, investors can also choose to switch from equity to debt or hybrid as per his/her investment requirement with ULIP, during the lifecycle of the investment.

Even though investment in ULIP looks like the best investment option at first, with both invest and insurance at the same place, experts suggest investors should not mix investment and insurance. It is said that one could earn better returns by putting the same money in equity mutual funds through SIP and getting protection by opting for a term insurance plan. Additionally, ULIP comes with a lock-in period of 5 years.

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