Which One is Better - a Single Premium ULIP or a PPF?
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Which One is Better - a Single Premium ULIP or a PPF?

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  • 16th Mar 2022
  • 314

Which One is Better - a Single Premium ULIP or a PPF?

In the last decade, the growth in the investment market in India has been exponential. Today, with the growth of technology, investing has become much easier and at the same time, much more secure. These days, most people use investment as an opportunity to save taxes, create wealth, and have a financially protected future. Some of the best tax-saving options that you get in India include ELSS (Equity Linked Saving Scheme), ULIP (Unit Linked Insurance Plan), PF (Provident Fund), MFs (Mutual Funds), PPF (Public Provident Fund), and so on.

With so many investment options available it is tough to pick the right one. In this article, we will discuss which investment option is better, a single premium ULIP or PPF? To understand the difference between ULIP and Traditional plans like PPF, you need to understand what these actually are and then decide on investing as per your financial goals.

Which one is better: Unit-Linked Insurance Plans (ULIPs) vs Public Provident Fund (PPF)

What is a Unit Linked Insurance Plan (ULIP)?

A Unit Linked Insurance Plan (ULIP) is a unique 2-part investment offering, which enables you to use the benefits of both life insurance and investment in a single plan. One part of the premium paid is used towards life insurance, while the other part is invested into different funds that can be managed individually. The different funds include equity, debts, bonds, stocks, or a hybrid investment. You can use a ULIP Calculator via which you can easily calculate a rough estimate of the return that you will get at the time of maturity, and after all the deductions. These online ULIP calculators however are just for a rough prediction. The actual value depends on the way you manage your portfolio of the ULIP funds (No ULIP calculator can predict an accurate return).

Some Top Features of ULIPs (benefits of investing in ULIP Insurance Plan)

  • Dual benefits of life insurance and market investment.
  • Allows you to be secure and maintain financial pace at the same time.
  • Helps in planning financial goals for a long term investment.
  • A comparatively lesser lock-in (maturity) period.
  • Helps save tax.
  • Allows Partial withdrawals.
  • Provides online ULIP fund switching options.
  • Allows premium top-ups for adding to the investment.

What is a Public Provident Fund (PPF)?

The Public Provident Fund (PPF) is a scheme provided by the government of India which was launched back in 1968. It is known for its safe investing options. PPF is quite popular among Indians as a stable investment option with a decent interest rate wherein all the returns are tax-free. You can use any PPF calculator to calculate the return after reaching the maturity period. The PPF calculators will tell you the exact amount that you will make from investing in such a fund. Also, while using the PPF calculator you will understand why the traditional investment tools are a safe investment option. However, these kinds of funds are highly rigid and you don’t get much freedom of choice if you invest in PPF. For example, PPFs have a minimum lock-in period of 15 years.

Some Top Features of PPF (benefits of investing in PPF)

  • Safe investment option.
  • Tax-free withdrawals after 15 years.
  • Investment schemed backed by Government of India.

Single premium ULIP vs PPF - A Tabular Comparison

It is highly advised to check the basic difference between ULIP and traditional plans to understand their benefits and choose the best plan based on your financial goals.

Criteria

ULIP

PPF

Returns

Varied returns wherein an individual can manage portfolios of funds.

Fixed interest and returns (Decided by the Government annually.

Lock-in Period

Minimum 5-year lock-in period.

15-year maturity period.

Tax Benefits

Tax exemption on investment of up to ₹2,50,000/annum. Additional taxes applicable above this amount under the IT act.

Tax saving options available under the Income Tax Act.

Liquidity options

Funds may be available after completion of the Lock-in period. It varies based on policy guidelines.

Partial withdrawal is allowed - you can make a partial withdrawal only after 7 years.

- A Consumer Education Initiative series by Kotak Life

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