Simplifying Life Insurance in India
What is the Difference Between ULIP and PPF?
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Unit Linked Insurance Plan (ULIP) and Public Provident fund (PPF) are both popular choices among investors with different financial goals. If you are looking forward to investment but are confused between these two, this article compares ULIP vs PPF so you can pick the one you need.
But first, let us take a quick look at these two investment modes.
What Is ULIP?
You can opt for both insurance and investments with a single premium under this policy. These investments effectively aid in wealth creation that you can use as a retirement plan. Additionally, you can devise several strategies to increase your profits from investments.
On the other hand, there will be an insurance component to this financial instrument. In case of your unfortunate demise, your nominee will receive death benefits as agreed under the policy.
What Is PPF?
The Government of India introduced the PPF scheme in 1968 with the intention of encouraging citizens to save more from their earnings. The main reasons for this are its stable nature, attractive interest rates and tax-free returns.
Also, individuals have a strong sense of financial security since it is a Government scheme. You can even opt for a loan against your PPF account in case of a financial crisis.
What Are the Key Differences between ULIP and PPF?
The main differences between PPF and ULIP are as follows:
|
Criteria |
Unit Linked Insurance Plan (ULIP) |
Public Provident Fund (PPF) |
|
Amount of Investment |
You can invest any amount, depending on your financial goals. |
The minimum amount that you have to invest is ₹500, and the maximum amount is ₹1.5 Lakhs for a financial year. |
|
Purpose of Investment |
Its main purpose is wealth creation and financial protection. |
Its main purpose is to serve as a passive income after retirement. |
|
Lock in Period |
The minimum lock-in period is 5 years |
The minimum lock-in period is 15 years. |
|
Partial Withdrawal Eligibility |
Allowed after 5 years from the start date of investment |
Allowed from the 7th year of investment. |
|
Charges Associated |
Multiple additional charges are associated. |
You will have to pay a one-time fee of ₹100 to open an account. |
|
Withdrawals |
You can withdraw money without additional charges after the lock-in period. |
Partial withdrawal is available from 7th year, and complete withdrawal only after 15 years. |
|
Tax Benefits |
Available under Sections 80C and 10D of the Income Tax Act. |
Available under Sections 80C of the Income Tax Act. |
|
Investment Risk |
It depends on the type of fund in which you choose to invest. |
Not much risk is involved as it is a government bank. |
Which is a Better Investment Option ULIP or PPF?
Below are some things that you can consider to decide PPF or ULIP which is better for you:
Returns on Investment: The rate for ULIP premiums is decided by the insurance provider. Moreover, the returns that you will be getting on your investment depend on fluctuations in the financial market.
However, in the case of PPF, the Government of India has set the interest rate. So you will get fixed returns every year from your investment.
Financial Coverage: In case of ULIP, you can get financial protection when you encounter an adverse situation. At the same time, you can amplify your wealth through investment in financial markets.
On the contrary, in the case of PPF, you can only save a certain amount from your income for your retirement. So you cannot get any financial coverage during emergencies.
Liquidity: For ULIP, you can make withdrawals after the lock-in period, that is, after 5 years. On the other hand, for PPF, you can make partial withdrawals only after 7 years. You can also make complete withdrawals from PPF after the lock-in period of 15 years.
Tax Benefits:In case of ULIP, you can get a tax-free claim amount under Section 10D of the Income Tax Act. Additionally, you can also get a tax exemption of upto ₹5 Lakhs on your premiums under Section 80C.
However, for PPF, you can only opt for a tax exemption upto ₹1.5 Lakhs under Section 80C of the Income Tax Act.
Considering these factors and the differences between ULIP vs PPF will help you make the right choice of investment. However, you must need to be sure about your financial goals and expectations from these investments.
FAQs About PPF and ULIP
What is the current interest rate of PPF?
How to calculate PPF interest?
Can I surrender a ULIP before the end of its duration?
Are the returns guaranteed on ULIP?
Is ULIP a good option for long-term investment?
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.
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