Moneyraam

Most of the times, when individuals talk about tax saving or investments, they usually look at Unit Linked Insurance Plan (ULIPs) and Mutual Funds (ELSS). No doubt both these methods of investment are most popular, but there are other avenues that investors tend to ignore. These alternate investment options have their own benefits and should be looked at. Public Provident Fund aka PPF is one of such investment option. Lets look at it in detail.

Salient Feature of PPF:

1. Fixed return of 8% compounded yearly.
2. Invest upto 70,000 every year.
3. Investment under 80C.
4. Returns are tax free.
5. Government backed.

Let us compare PPF with ULIPs and Mutual Funds on all the above points.

1. You can invest as much as 70,000 or as less as 500 every year in PPF. In ULIP you will have to commit for a regular investment over a period of 3 years or more. MF give you a option of investing at a single go or regular investment through SIP.
2. ULIPs and Mutual Funds do not guarantee any returns. Though there are a few ULIP product that guarantee some return but none of them match to 8% guarantee.
3. Investments made in PPF qualify for tax deduction under 80C. In ULIP and ELSS too investments qualify for tax deduction under 80C.
4. Returns from PPF are tax free same as in ULIP and ELSS.
5. Lock-in period of PPF is 15 years which is more than either ULIP or ELSS. After 15 years PPF account can be extended further for 5 years.
6. Partial withdrawal is allowed after 5 years, which is also available in ULIP. In case of ELSS investment can be completely or partially withdrawn after three years.
7. There are no entry load or exit load, i.e. the entire money you pay earns interest. This is same as ELSS. Most of the ULIP plans have entry load as premium allocation charges and exit load as surrender charges.
8. In case you need money for some urgency, you can also avail loan against your PPF account.
9. A lender cannot liquidate your PPF money in case of bankruptcy.

To summarize:

If you are looking for an investment

1. which gives you tax benefit, with tax free guaranteed returns
2. where liquidity is not important
3. which is guaranteed by government

Then PPF is the instrument of investment for you.

Disclaimer: The author of this article is not a certified financial adviser. Read and understand the PPF details well before investing.

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Meta: June 18th, 2010 by Ripul Gupta
Tags:   elss · tax benefit · ULIP1 Comment