By Veronika If you are looking for tax-saving investments, some of the available options include unit-linked insurance plans (ULIPs), equity-linked savings scheme (ELSS), and Public Provident Fund (PPF).
ULIPs are life policies that combine insurance and investment returns in a single product. ELSS plans are mutual funds that invest in equities and offer tax benefits. PPF is a long-term investment option focusing on building a retirement corpus.
Choosing the right product from many options depends on your current earnings and future financial objectives. Here is these products offer:
ULIPs
These insurance policies utilize part of the premium towards market-linked funds such as debt or equity funds. They do not provide guaranteed returns, as the chosen investments are subject to market fluctuations. You can switch between the various investment options as per your financial goals.
ULIP tax benefits are available under Section 80C of the Income Tax (IT) Act, 1961. Additionally, maturity proceeds are eligible for tax deduction under Section 10(10D) of the Act.
Before you choose to invest in ULIPs, remember that there is a minimum five-year lock-in period. You can use an online ULIP plan calculator to know more about this investment option.
ELSS
This is a good option if you want to invest in mutual funds and save tax. ELSS plans are diversified funds that invest in particular stocks based on their market capitalization. Almost 65% of the corpus is invested in equities, and therefore, the returns are dynamic and depend on the market performance.
By investing in ELSS, you can avail of a tax exemption of up to INR 1.5 lakh per annum under section 80C of the IT Act. Additionally, the return on investments from ELSS is taxable at 10% without any indexation benefits if the total earnings are more than INR 1 lakh during the financial year.
The lock-in duration for ELSS investments is three years.
PPF
PPF is a popular investment option because it offers guaranteed returns as well as tax deductions under section 80C of the IT Act. In addition to the section 80C exemptions, similar to the ULIP tax benefits, the maturity proceeds from PPF are tax-free, which allows you to build a sizable retirement corpus.
The lock-in period for a PPF investment is 15 years. However, you can make partial withdrawals or avail of a loan after seven years. The interest rate is determined by the Government of India and is revised quarterly.
Here are some factors to consider while evaluating the three investment options:
- Risk profile
PPF is a risk-free investment option and is backed by the Government of India. In comparison, ELSS and ULIPs are risky, as these products invest the corpus in market-related investments. If you do not want to assume high risks, PPF can be a suitable investment option.
- Investment horizon
All these three avenues come with a minimum lock-in period. The shortest lock-in period is three years for ELSS investments and the longest is 15 years for PPF. If you are investing for long-term financial goals, such as children’s higher education or retirement, ULIP may be an excellent instrument. You can also use an online ULIP plan calculator to determine the amount you will need to meet future monetary objectives.
- Tax benefits
ULIPs and PPF are exempt-exempt-exempt (EEE) investments where the principal, interest, and maturity benefits are tax-free. On the other hand, if your earnings from ELSS exceed INR 1 lakh during a financial year, these are considered as long-term capital gains taxable at 10%.
Although several other tax-savings investment options are available, you need to consider the changes made to the tax regime in the Union Budget 2020. Moreover, these are relatively popular and safer tax-saving instruments. Before making your investment decision, understand the ULIP plan meaning, and research on PPF and ELSS, to ensure you choose an option that best suits your requirements.
Roger Clemens 
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