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ELSS vs ULIP vs PPF: Which Is the Best Investment Option?

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 funds 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. 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.

Is ULIP better than term insurance?

ULIP combines insurance + investment but has high charges and lower returns than pure mutual funds. Term insurance is cheaper and offers higher coverage. If you want only protection, term is better; if you want insurance + investment (with risk), ULIP can be considered.

Do life insurance companies also sell investment plans?

Yes, many life insurance companies offer investment plans in addition to traditional life insurance. These plans, such as ULIPs (Unit Linked Insurance Plans), combine insurance coverage with investment opportunities in various funds. This allows policyholders to grow their wealth while also providing life coverage for their beneficiaries.

Is term insurance a good investment?

Term insurance is not an investment; it’s a protection plan. But it’s one of the smartest financial decisions you can make. Term insurance companies offer high sum assured at affordable premiums, making them ideal if your main goal is to provide financial stability in your absence.

Which is more suitable as a long-term investment: ELSS, ULIP, or PPF?

ULIP stands out for combining life insurance with investment, while ELSS and PPF are purely investment options. ELSS offers high return potential but comes with market risk, and PPF provides guaranteed returns with tax benefits. ULIPs offer flexibility in fund choices and switching options. A ULIP calculator can help you compare projected returns across these options based on your investment horizon and risk tolerance.