Last Updated: January 02, 2023, 13:27 IST
Each investment option, as well as a sector it falls in, has advantages and disadvantages of its own. The Public Provident Fund (PPF), the Unit Linked Insurance Plan (ULIP), and the Equity Linked Savings Scheme (ELSS) are examples of financial instruments that fall into several categories: debt, equity and insurance, respectively. As each of these is eligible for Section 80C tax deductions, taxpayers should compare them. Investors should weigh all relevant considerations before investing because aside from tax advantages, each of these vehicles offers a unique set of perks and drawbacks. We’ve examined ULIP, PPF, and ELSS, and consulted industry experts to help taxpayers start their New Year with financial security.
All three investment options — ELSS, PPF, and ULIP — offer benefits under Section 80C of up to Rs 1.5 lakhs per year, as well as producing healthy returns for investors. But choosing which of these three options is optimal in terms of tax advantages and investment returns relies on several criteria, including:
Liquidity: Compared to ULIP and PPF, which have lock-in durations of 5 years and 15 years respectively, ELSS offers the shortest lock-in time of only 3 years. It is also advised to think about liquidity before investing in any of the tax-saving investment strategies.
Expenses: ELSS has the advantage of minimal costs and expert management due to SEBI’s restricted expense ratio limitations, whereas ULIPs do not have such a limit. In comparison to mutual funds, ULIP scheme fees might be significantly higher. The investor only needs to pay a one-time fee of $100 for PPF in addition to their investment.
Risk Coverage: ULIPs include a built-in insurance plan that pays the sum assured to the family, in case the policyholder passes away during the policy’s term. Mutual funds and PPF, however, do not have any risk that is covered by insurance.
Return on Investment: Since ELSS and ULIP are both market-linked investment alternatives, the returns on PPF are not guaranteed and are not fixed or tax-free. PPF interest rates are currently 7.1% per year. For periods of three and five years, the average return on ELSS is 17.19% and 11.10%, respectively.
It is advised to stretch out your investment over a medium to long-term period, and buy a combination of PPF and ELSS. A term plan with suitable risk coverage that is at least 10 to 15 times your annual income is also recommended.
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