Are ULIPs Better Than PPF Accounts?

A Unit Linked Insurance Plan (ULIP) is a type of insurance plan that offers the policyholder both investment and life insurance. How does this, however, work? When you buy a ULIP, a portion of your premium is used to provide life insurance, while the rest is invested in money-making funds of your choice - equity, debt, or hybrid. Any ULIP scheme has a long-term investment horizon (5|10|15 years) in place. As a result, the lock-in time is set at five years.

The cost of a ULIP is determined by the duration of the policy. It is 4% for 5-year ULIPs, 3% for 10-year ULIPs, and 2.25 percent for 15-year ULIPs. Premium allocation, fund switching, fund management, administrative fees, and other fees are examples of additional charges.

The PPF is a government-sponsored savings plan that was established in 1968. It is also regarded by Indian investors as one of the most reliable and favoured saving products. The goal of this program was to instil the habit of saving in Indians. Because this is a government-backed scheme, the annual interest rate is set by the government. For the fiscal year 2018-19, the current rate is 8%.

Previously, PPFs could only be opened at post offices; however, they can now be opened at any public or private bank. You can even open one on the internet and link it to your salary account. The investment has a 15-year term with the opportunity to extend it for another five years. You can start with a $500 minimum commitment and work your way up to $150,000 every year.

Are ULIPs Better Than PPF Accounts?

Below are ways in which ULIPs are  better than PPF accounts:

1. Lock-In Period

Five years is the bare minimum lock-in duration.

However, if you cancel the insurance before the lock-in period is finished, you will have to pay surrender charges based on the premium amount, according to the Insurance Regulatory and Development Authority of India (IRDAI) regulations

A 15-year lock-in is required. However, beginning in the seventh year, you'll be able to take partial withdrawals.

2. Tax Benefits

Section 80C of the Internal Revenue Code allows you to deduct premium payments.

Furthermore, Section 10 exempts the maturity amount from tax (10D).

Note: If the annual premium paid is more than 2.5 lakh, ULIPs issued after February 1, 2021, will be taxed as capital gains. Upon maturity, these policies will be subject to a 10% tax.

PPF investors can claim deductions under Section 80C of the former income tax structure for up to 1.5 lakh invested in a single financial year.

3. Returns

PPF is known for providing fixed annual returns because it is a government-backed scheme. The Indian government sets the interest rate at the beginning of each fiscal year. PPF has a current interest rate of 7.1 percent (2021-22).

The ULIP, on the other hand, does not provide a fixed rate of interest. The amount you receive as maturity or the death benefit your dependents receive will be determined by the market conditions at the time. 

Conclusion

Make sure you choose the best investment choice for yourself now that you understand the differences between ULIP and PPF. When it comes to deciding which is the better option, keep in mind that it is entirely dependent on your needs and expectations.

If you want to invest while still protecting yourself, ULIP is the way to go. PPF is a good option if all you want is to invest. ULIPs are also a good option if you're willing to take a chance and profit from market fluctuations. PPF, on the other hand, is the way to go if you want guaranteed returns and don't want to be reliant on market conditions. You will profit from Section 80C of the Income Tax Act of 1961 in both circumstances.

Also read - Prime Differences Between ULIPs And Term Plans

Understanding The Concept Of Lock-In Period In ULIPs

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.