ELSS Vs ULIP VS PPF: Choosing the right tax saver
If you are looking to save tax, it is likely to get confused as there are several tax savers in the market. Of the many tax savers, the three hot favorites among taxpayers are – ELSS, Ulips, and PPF. But, choosing the right tax saver among these three is much simpler than you think. For a better-investing decision, knowing the features of these tax saving options, how they work and how would they help you in meeting your goals needs to be grasped. Let us visit each of them for better understanding.
Equity Linked Savings Scheme (ELSS)
With the shortest lock-in period of three years and tax benefits under section 80C of up to Rs 1.5 lakh, Equity Linked Savings Scheme (ELSS) is a mutual fund scheme that you may consider. According to the tax bracket of the investor, the amount invested in ELSS qualifies for a deduction, which lowers the tax liability.
ELSS is primarily an equity fund, investing at least 80% of its assets in stocks. In the past, it has been observed that stocks tend to rise over the long run and have produced returns that are larger than those of other asset classes after accounting for inflation. If your risk profile permits it, invest in them as they may show volatility over the short- to medium-term.
Make sure you hold 2-3 ELSS to diversify across a variety of industries and market capitalizations. After the end of three years when the lock-in period is completed, you may continue to hold the ELSS funds to meet long-term goals including retirement.
Unit-linked insurance plan (Ulip)
A hybrid product that combines protection and saving is a unit-linked insurance plan (Ulip). Along with providing life insurance, it also aids in investing money in a variety of market-linked assets in order to achieve long-term objectives. These objectives may include saving money for one’s own retirement, paying for the education or marriage of children, or putting money as a down payment on a home loan. Ulips enable both financial security and saving, which are both necessary.
At various points in a person’s life, they have varied financial demands. One can tailor their savings plan by using Ulip’s features, which include partial withdrawals, a variety of fund alternatives, and several modes of payment methods for premiums. Ulips permit one to take partial withdrawals once the lock-in period expires after five years. You may take a partial withdrawal from your Ulip fund as and when a goal is in reach to cover the expense.
There are numerous variables in a Ulip, including the premium, the tenure of the plan, mortality (the risk component), fund administration fees, and allocation fees, to name a few, that have an effect and interact with one another. It can be thought of simply as a mutual fund with insurance on top of it.
Public Provident Fund (PPF)
The government guarantees both the principal and interest generated on Public Provident Fund (PPF), which continues to be a well-liked fixed-income investment. Additionally, nothing is taxed, not even the earnings!
PPF is a 15-year investment plan with annual compounding. The PPF account’s tenure and the scheme’s method of compounding interest income are what make it the most advantageous.
PPF is a debt product that generates consistent tax-free income over the long term. The ELSS, a tax-saving equity mutual fund, is a product that it is frequently contrasted with. The returns earned will differ since the underlying securities in the two asset groups are fundamentally different.
For investors who feel at ease with the volatility that comes with equity investments, ELSS is a good option. PPF, on the other hand, will fit individuals who are searching for stable growth in savings, not necessarily a large return, as it is a debt-oriented investment where one’s funds are not exposed to equities.
Every individual’s needs are different and we are here to help you out carve out a specific investment plan based on your goals, needs, and aspirations. To know which tax saver suits the most, do get in touch with us by clicking here.