Driven by ambitious life goals and traditional, millennials today are motivated to earn more and invest their savings. This tech-savvy crowd has effortless access to much information to be aware of several investment options available to them, to ensure that their money works for them. Multiple surveys show that unlike their parents and grandparents, the young population prefer equity over real estate or gold or any other traditional investment. One thing that investors often look in their investment options is the tax-saving perks it offers. Because let’s face it – nobody likes the additional outlet of money from their account. Some of the most popular tax-saving investment options are ELSS (equity-linked savings scheme), ULIP (unit-linked insurance plans), and PPF (public provident fund).
As all these schemes, help to save tax and also help to build a retirement corpus, there’s always an element of confusion in choosing the apt scheme for one’s portfolio. This article aims to offer a comparative analysis between ELSS vs ULIP and ELSS vs PPF.
ULIP vs. ELSS vs. PPF
The following table summarizes the difference between ULIP and ELSS and PPF
|Basis of comparison||ELSS||ULIP||PPF|
|Definition||These are tax saving mutual funds with a majority of their corpus invested in equity or equity-related securities.
|It is an investment plus insurance product where a part of the investment is used for investments in preferred financial products. In contrast, the other part is used for securing the investor’s life.||It is a savings scheme provided by the government of India wherein the government pays a fixed, predetermined interest. PPF schemes are considered as one of the safest tax-saving investment options.|
|Expected returns||15-18%||Depending on the investor’s profile||8%-8.5%|
|Tax benefits||Tax reduction of up to Rs1.5 lac p.aunder section 80C. Gains above Rs 1 lac are taxed at 10% without the indexation benefit.||The invested amount is offered tax deduction of up to Rs1.5 lacu/s 80C. However, the gains are taxable.||Money deposited in a PPF account receives tax benefits of up to Rs1.5 lac under section 80C of the IT Act. Interest gained is tax-free.|
|Liquidity||High-liquidity is offered at all times after the lock-in period.||Funds under ULIP policy can be available after the lock-in tenure subject to further policy conditions.||Low or partial withdrawals after the expiry of 7 years from the date the account is opened|
|Lock-in period||Three years||Five years||Fifteen years|
|Who can invest?||An investor looking for dual benefits of tax saving and creating wealth||An investor looking for wealth creation along with alife cover||Any Indian citizen who wants to achieve their long-term investment goals|
As you can see, all these investment options offer tax benefits of up to Rs1.5 lac u/s 80C, although ELSS funds are a class apart. Want to know why? For starters, ELSS mutual funds are the only type of 80C investment option that offers the lowest lock-in period of 3 years, as opposed to 5 and 15 years. What’s more, these funds offer significantly higher returns than the other two investment options. ELSS funds are also popular because of the flexibility it offers to its investors. Unlike ULIP, you can shift to different ELSS funds if you are not satisfied.
Irrespective of the investment product you decide to go forward with, make sure it is in line with your investment horizon, financial goals, and risk profile. Happy investing!