ELSS vs. ULIP vs. PPF Which is better tax saving investment

ELSS vs. PPF vs. ULIP : Which is better tax saving investment for the year 2019?

Taxation reduces a considerable part of the income and in order to ensure maximum benefits from any investment, one must always look for tax-efficient investment instruments. Under Section 80C of the Income Tax Act, the government allows an exemption on investment in various schemes and individuals can claim tax deductions of up to Rs 1.5 lakh on such investments. Three such schemes are the Public Provident Fund (PPF), Equity Linked Savings Scheme (ELSS) and Unit Linked Insurance Policies (ULIP).

Equity-linked savings schemes (ELSS) and unit-linked insurance policies (ULIP) are long-term investment products that are aimed at providing equity returns along with tax benefits. ULIPs also offer insurance benefits along with market returns and tax advantages. PPF is more like a voluntary EPF scheme that the government started to encourage residents to save for their retirement. PPF is a debt product issued by the post office.

ELSS:

Equity Linked Savings Schemes or ELSS is another type of a Mutual Fund which offers tax exemption under section 80C of the Income Tax Act. These Schemes Invest in the majority of their corpus in Equity Market. Since the returns from such schemes are market-linked, the performance of these funds depends on the stock market and individual stock holdings in a particular ELSS.

Features:

  • Three Year Lock-in Period
  • Tax Exemption up to 1.5Laks under section 80c of Income Tax Act.
  • Higher Risk and Higher Returns
  • Growth schemes and dividend schemes
  • Low Expense Ratio
  • No maximum amount cap in ELSS but, contributions made up to Rs. 5 lakh only are exempted from tax
  • On completion of the 3-year lock-in period, one can still continue to invest in the scheme
ULIP:

Investments in ULIPs are eligible for tax deductions u/s 80C and the maturity fund value will also be tax-free provided the sum assured (SA) of the policy is more than 10 times of the annual premium. If SA is less than 10 times of annual premium, no tax benefits will be available. However, death benefits are tax-free in the hands of a nominee, even if the death occurred before completion of five years from the date of purchase of the eligible ULIP policy.

Features:

  • Five Years Lock-in Period
  • Tax Exemption up to 1.5Lakhs under section 80C of Income Tax Act
  • Higher charges
  • Can invest in Debt or Equity, depending upon your risk appetite.
  • Switch facility: Can switch from debt funds to equity funds

 

PPF:

Public Provident Fund Scheme or PPF is a long-term investment instrument introduced by the government to encourage savings for providing security to people in old age. Any resident Indian citizen can open a PPF account. PPF account can be opened for minors also with either of the parents or a legal guardian jointly.

Features:

  • Low Risk
  • Fifteen Years Lock-in Period and can be extended indefinitely for blocks of 5 years maturity
  • Minimum investment amount in a PPF account is Rs 500 per annum and the maximum amount that can be deposited in a year is Rs 1.5 lakh
  • Under section 80C of the Income Tax Act, one can claim deduction up to Rs 1.5 lakh for the contribution made towards PPF
  • Low Returns, as the Investments are made in Debentures.
  • Only one PPF account can be opened
  • Partial Withdrawal is allowed after 6th

Conclusion: Debt yields are falling consistently and PPF rates change on a quarterly basis. Of course, PPF returns will also be revised upwards with rising in interest rates but that is a remote possibility with inflation at such low levels. The power of compounding works perfectly in case of ELSS and ULIP. In case of PPF, with 8% annual rate of return, your long-term wealth creation is restricted. Between ELSS and ULIP, ELSS is better as because of low Lock-in Period and Low Expense Ratio.

 

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