ULIP, PPF or MF – Which one should you go for and why

Today, you can find investing to be a lot simpler than it was years ago. As an investor, you can select between various investment vehicles like a Unit Linked Insurance Plan (ULIP), Public Provident Fund (PPF), and Mutual Fund (MF). Although there might be a sheer number of investment options in the market, you might find it difficult to choose the right one for you based on your needs. 

Before choosing between ULIPs, PPFs, and MFs, let’s understand each of these three investment tools in detail to avoid confusion at the time of purchase:

  1. What is ULIP?

A ULIP plan is a dual-benefit financial product, which combines investment and insurance under a single integrated plan. With a ULIP plan, you can provide financial support to your loved ones as well as diversify your investment portfolio. However, you should pay the premiums regularly within the selected term to receive the ULIP benefits. 

When you purchase a ULIP policy, you invest your money in different types ofULIP funds, which are equity and debt funds. Moreover, it allows the withdrawal of your funds in the following circumstances:

  • In your absence

A ULIP policy provides a payout to your nominees in your absence for their financial well-being in the long run. The payout offered by a ULIP policy is referred to as a death benefit. The death benefit is tax-free, as stated under Section 10(10D) of the Income Tax Act, 1961. 

  • At maturity

When your ULIP policy matures, you can receive either fund value or sum assured, whichever is higher. Moreover, the returns that you can receive on your maturity proceeds are exempted from taxes. 

  • Partial withdrawal

A ULIP policy has a lock-in period of five years, which does not allow withdrawal of money before its completion. However, there are certain insurance companies that might allow the facility of partial withdrawal during an emergency. You should check with your insurer about the partial withdrawal system before purchasing a ULIP policy. 

  1. Public Provident Fund

PPF is a government-backed investment plan, which offers tax benefits on investments. As an account holder, you can start investing a small amount for receiving high returns as well as tax deductions. However, you can use the PPF benefits only if you are a citizen of India.

A PPF account allows you to use the following functions at the end of the maturity period:

  • Full withdrawal of your money

Once you invest in a PPF account, you cannot opt out of it until the next 15 years. After reaching the maturity period of 15 years, you can withdraw your entire sum of amount for free. Moreover, you are eligible to obtain interests on maturity date.

  • Extension of the PPF account 

As an account holder, you can extend your PPF account in only two scenarios:

  1. With contribution

If you wish to extend your PPF account with a contribution, you can withdraw 6% of your invested capital within five years or you can make a single withdrawal every year. 

  1. Without contribution

If you wish to extend your PPF account without any contribution, you can withdraw your money only once every financial year. 

  1. Mutual Fund

When you invest in a mutual fund, you can get the help of your fund manager for managing your investment portfolio. With his help, you can earn high returns and keep a tab on the overall performance of your funds. Under MFs, you can redeem your funds either online or offline. As a policyholder, you can redeem your funds on any day based on your convenience. 

Every investment option has a different approach. While a ULIP policy is a dual-benefit product, PPFs and MFs lack the benefits of insurance. Moreover, their returns are relatively less than a ULIP policy. Therefore, a ULIP investment is beneficial to you, as an investor for multiple reasons. Let’s understand the benefits of a ULIP policy:

  • Tax benefits

A ULIP policy avails tax-saving benefits on premiums and death benefits. As stated by Section 80C of the Income Tax Act, 1961, you can claim a tax deduction up to Rs. 1,50,000 on your taxable income. Moreover, your family can receive a tax-free death benefit in your absence, according to Section 10(10D). 

  • Flexible options

A ULIP investment provides flexibility in two ways:

  • Premium payment-

 You should pay premium regularly to avail the ULIP benefits. However, the choice of paying the premium lies in your hand. As a policyholder, you can pay premium quarterly, monthly, half-yearly, and annually based on your convenience. 

  • Fund selection&switching facility-

A ULIP policy allows you to select equity funds and debt funds based on your risk appetite. Moreover, you can switch between these two funds to protect it from the fluctuations of the market.

As highlighted above, a ULIP policy has gained popularity in the Indian market after years due to its low costs and high returns.  However, you can find a range of ULIP products available with different agents in the markets. Therefore, see to it that you compare these options and select a ULIP that aligns with your financial requirements, investment goals, and risk appetite.