Growing wealth is a common goal for everyone. Rising cost of living, commodities, and a fluctuating economy are some of the factors that drive people towards investing their money into different financial instruments. Investing helps in securing a financially safe future for yourself. There are different options of investment that you can choose from. Some of the top choices are ULIP, ELSS and PPF. However, what are the differences between the three? And which is more efficient and offers more savings? Read on to find more.
What is ULIP?
A unit linked insurance plan is a type of life insurance policy that gives you the double benefit of investment and insurance. The premium for this policy gets divided, with one part being invested in the life cover and the other part being used for market investments. Investments are done in two funds: equity and debt. Equity is a high-risk, high-return market fund, whereas debt is a low-risk, low-to-medium return market fund. Based on your risk appetite and requirement, you can invest in either one or both funds. This policy is suitable for a long-term duration as the returns can be substantially decent.
What is ELSS?
Equity linked savings scheme is a type of mutual fund in which you can invest your money in equity market and also enjoy tax deductions on your investments. Investments are done in stocks listed in the equity market, with different capitalisations being offered to the investor. As the investments are done in equity funds, the risk of exposure to market fluctuation is high and could deplete your investments.
What is PPF?
Public provident fund is a type of fund which is mainly aimed at the earning middle class. It was introduced with the aim of promoting the habit of savings as a type of investments while also offering good returns on the investments. Although it is a preferred choice among those who fit in the middle-class income bracket, PPF is also looked at as a small investment option by many.
What are the benefits of ULIPs over ELSS and PPF?
While all three are instruments of investments and the growth of wealth in the long run, a ULIPoffers the following benefits over ELSS and PPF:
- Tax savings
Premiums paid for ULIPs and ELSS are tax exempted under Section 80C of the Income Tax Act. This exemption is applicable for the limit up to Rs.1,50,000. While a PPF does not offer high returns, the premiums, investments and returns are all exempted under Section 80C. However, due to being the preferred options for investments due to their high returns, an ELSS is taxed more than a ULIP. The returns of ELSS are taxed at 10%. On the other hand, the returns on ULIPs are not taxed at all under Section 10(10D) of the Income Tax Act.
- Rate of return
The investments made in PPF offer returns of only up to 7.9%, which are quite low in terms of wealth gain. ELSS offers a dynamic return up to 14%. However, as the investments are done purely in equities, these returns could reduce based on fluctuations in the market. So, you could end gaining lesser returns on your investments. ULIPs, however, offer higher returns compared to PPF and ELSS. As the investments are balanced, that is done in both equity and debt; investments weather out the fluctuations of the market and get corrected over time to give you returns of up to 16-17%. You can use the ULIP calculator to get an idea about the returns based on your investments.
The ability of being able to manage your investments is one of the reasons why ULIPs are more preferred over ELSS. While PPF does not have the option of selecting a type of fund as per your preference, ELSS offers different options only in the equity market. This means your investments are always exposed to the higher risks of the equity market. On the other hand, ULIPs offer you the option of switching your investments. If you have invested in both equity and debt funds and wish to reallocate your investment from one fund to another, you can do so in ULIPs. This helps you in maintaining your returns and adapting to market risks. The ULIP calculator helps you in giving an idea about how your investment would be divided as per your requirements.
Even though PPF and ELSS are opted by people for growing their wealth, with greater returns and flexibility, ULIPs are the best investment option for you. If investment and insurance is your goal, go for ULIP (meaning, go for those double benefits in a single policy).