Comparative Analysis of ULIPs vs PPF vs MF

The most difficult decision for an investor is making the right investment vehicle to help you achieve your financial goals. This can seem overwhelming for a novice investor due to the number of investment options. Or should you choose to invest in shares? Or you can opt for mutual funds. Isn't PPF safe? What is an ULIP? There are many questions. We have many questions.

The Mutual Fund

Mutual Funds are a preferred investment option for Indians. They are professionally managed and pool money from investors who share similar financial goals. These funds are invested in securities to meet the fund's overall investment goal. A fund manager with experience monitors and manages the corpus, making any necessary adjustments to ensure positive returns.

There are 3 main types of mutual funds:

Equity Funds - funds that invest primarily in equity or equity-related instruments. These funds have a higher risk and offer higher returns than other types.
Debt funds - where the fund invests mainly in debt securities and money market instruments. These funds are less risky than equity ones, but they also have lower returns.
Balanced funds - the fund can invest in both equity instruments and debt instruments. They are moderately risky and provide moderate returns.

Section 80C of the Income Tax Act, 1961 provides Tax Benefit under Equity Linked Savings Scheme or ELSS,ELSS have a three-year mandatory lock-in period.

Mutual funds also provide many tools and facilities to assist investors. These include:

Systematic Investment Plan (SIP) - This plan allows the investor to invest a set amount of money regularly in the mutual funds scheme. You can therefore invest Rs.1000 every month in the mutual fund scheme you choose. This allows you to save money and also invest.
Systematic Withdrawal Plan (SWP) - allows the investor to withdraw a set amount from his investments on a regular basis. You can choose to withdraw only the profits on a regular schedule. This will allow you to create a second source of regular income.
Systematic Transfer Plan (STP), is a way for investors to transfer funds within the same fund house from one scheme into another. This can be used to protect your losses and keep the money you have earned without having to withdraw the funds.

Public Provident Fund (PPF)

The Government of India created a long-term savings option in 1968 to encourage people to save for retirement. The Public Provident Fund, or PPF, was the name of this scheme. You must deposit at least Rs.500 each year and up to Rs.1.5 lakh annually in your PPF account. The lock-in period for this account is 15 years. The rate of interest offered through the PPF scheme in Q2 2019-20 was 7.9%

Your capital is safe because this scheme is supported by the Government of India. PPF investments offer tax benefits as per Section 80C, Income Tax Act, 1961. This scheme falls under the EEE (Exempt-Exempt-Exempt) category. This means that the investment and interest earned are exempted from tax at the time it is made, as well as the redemption.

Unit Linked Insurance Plan

A ULIP, a unique investment vehicle, combines the ideas of insurance and investment. ULIPs provide you with life insurance and the opportunity to earn returns. The premium amount you pay for a ULIP is split into two parts. The first is used to purchase the policy and the second is used to invest in Mutual Funds. There are a variety of ULIPs depending on their investment options. There are two types of ULIPs: a Balanced High equity ULIP that focuses primarily upon equity investments and a Balanced Low Debt ULIP that focuses on debt investments.

Further, ULIPs offer tax benefits as per Section 80C of 1961's Income Tax Act.

Mutual Funds vs. ULIPs vs. PPF

This is a comparison of these three investment vehicles.

Factor: Investment Focus
Mutual Fund	Wealth creation or regular income
ULIP	Insurance and wealth generation
PPF	Income after retirement

Factor: Lock-In Period
Mutual Fund	Lock-in is not available for open-ended plans. Closed-ended schemes come with a maturity period. ELSS schemes also have a 3-year lock-in.
ULIP	Lock-in period: 5 years
PPF	Mandatory lock-in for 15 years

Factor: How much money can you put into an investment?
Mutual Fund	Start investing with a SIP of Rs.500. There is no upper limit.
ULIP	It depends on which plan you choose. The premium amount also affects the amount of life insurance. The minimum amount for mutual funds is, therefore, higher than the minimum for mutual funds.
PPF	A minimum of Rs.500 and a maximum amount of Rs.1.5 million must be invested in a single financial year.

Factor: Charges
Mutual Fund	Annual Fund Management Fees (Expense Ratio and Exit Load in some cases)
ULIP	Premium allocation fees, mortality charges, and administration charges as well as fund management charges are included.
PPF	One-time account opening fees of Rs.100

Factor: Tax Benefits
Mutual Fund	We will be referring to ELSS programs for the purpose of comparison. These schemes can be deducted as taxable income from your income, up to Rs.1.5 lakh per financial year. This benefit is provided by Section 80C under the Income Tax Act 1961.
ULIP	You can deduct the invested premium up to Rs.1.5 Lakh per annum from your taxable income as per Section 80C under the Income Tax Act, 1961.
PPF	You can deduct the amount you have deposited to your PPF account within a financial year from your taxable income, subject to a maximum of Rs. 1.5 lakh per annum. This is Section 80C under the Income Tax Act 1961.

Factor: Withdrawals/Redemptions
Mutual Fund	You can redeem open-ended schemes at any time Closed-ended Schemes: You can trade the units at the stock exchange ELSS: You can only withdraw after three years. Premature withdrawals cannot be made.
ULIP	Only partial withdrawals are allowed after the lock-in period has ended
PPF	From the 7th year, partial withdrawals are allowed. Only after 15 years have passed can you withdraw completely.

Factor: Investment Risk
Mutual Fund	It depends on the type and complexity of the scheme. Equity schemes are riskier than balanced or debt schemes.
ULIP	It all depends on the amount of equity and debt you have in your investment portfolio
PPF	It is guaranteed to be in good standing by the Central Government.

Summarising

This article should have helped you to understand the differences between mutual funds, ULIPs and PPF investments. Talk to an investment advisor if you require further assistance before creating your financial plan. Keep these things in mind:

Best Wishes For Investing and Good Luck for the Future.