There are different types of investment avenues which have different characteristics as well as risk-return profiles. Market-linked avenues are those which invest in the market and yield non-guaranteed returns while fixed-income avenues are those which do not invest in the market and yield guaranteed returns. Investors who are averse to market risks usually prefer fixed-income avenues and if such avenues offer tax benefits, all the better.
Section 80C of the Income Tax Act, 1961 offers some good investment avenues which offer tax benefits on investments. Two of the most popular avenues under this Section are the PPF scheme and LIC plans. Both these schemes have some similarities as well as differences and you need to know about both before you invest. So, let’s explore –
The PPF scheme
Short for Public Provident Fund, the PPF scheme is a fixed-income long term saving scheme with fixed interest rates. The scheme helps you accumulate a lump sum corpus by regular investments. Moreover, the scheme allows tax benefits on investments, returns and the maturity amount.
LIC is a leading life insurance company that offers a range of insurance plans. LIC plans offer coverage against the risk of premature death. Moreover, many plans also promise a benefit after the completion of the coverage tenure thereby giving returns on investments.
LIC vs PPF – the similarities
Both PPF and LIC plans have some similarities with each other. These similarities include the following –
- Investment into both the schemes earns you a tax benefit under Section 80C up to Rs.1.5 lakhs
- Returns earned from PPF are tax-free. LIC plans also give tax-free death and maturity benefits subject to certain terms and conditions
- PPF allows partial withdrawals from the 7th year. LIC ULIP plans also allow partial withdrawals from the 5th year onwards
- PPF allows loans between the 3rd and 6th years. LIC traditional plans also allow loans once the policy acquires a surrender value
PPF vs LIC – the differences
The similarities between the two schemes are limited but the differences are not. Both these schemes are quite different from one another and their differences are mentioned below –
|Points of difference||PPF||LIC|
|Eligibility||Resident Indian citizens can opt for the PPF scheme||Resident Indian citizens, NRIs and employers can buy a LIC plan|
|Return||The rate of return on the investment is fixed by the Government. It is also reviewed periodically||LIC traditional plans offer guaranteed death and maturity benefits. If the plans have a bonus component, the rate of bonus is not fixed. It depends on the profit experience of LIC and is determined by LIC|
|Nature of investment||Fixed-income investment||LIC offers both guaranteed saving plans as well as market-linked plans|
|Death benefit||On the death of the depositor, the account balance is paid which is equal to the amount invested and the returns earned thereon||On death, a specific death benefit is paid which might be higher than the amount of premium paid towards the plan|
|Tenure||The scheme runs for 15 years and can be extended in blocks of 5 years after maturity||LIC plans have different tenures ranging from 5 years to the whole of life|
|Deposit amount and tenure||You can start a PPF deposit with as little as Rs.100 and there is no maximum limit. At least one deposit is necessary every financial year||The premium payable for LIC plans depends on the plan selected. There might or might not be a maximum premium amount. Moreover, the premium can be paid over the duration of the policy that you buy, for a limited period or at once when buying the plan|
|Maturity benefit||The investments that you have done and the accumulated rate of interest is paid in a lump sum on maturity||There is a specific maturity benefit under LIC plans which depend on the type of policy that you buy. Under term plans, there might not be a maturity benefit altogether. Moreover, the maturity benefit can be paid in a lump sum or in instalments under different LIC plans|
|Market risks||Being a fixed income investment avenue, PPF does not face any market risk and give secured returns||If you choose unit-linked LIC plans, your investments would be exposed to market risks|
Thus, both the PPF scheme and the LIC scheme are different from one another.
PPF or LIC which is better
Both schemes have their respective pros and cons. You should judge your financial needs before you pick either. The PPF scheme helps you accumulate a guaranteed corpus which is also tax-efficient in nature. In contrast, LIC plans help you provide financial security to your family in case of your premature demise. Thus, the rationale for buying both schemes is different. However, if you are looking from the investment point of view, you can pick PPF for fixed returns or LIC ULIPs for market-linked gains. For fixed returns, you can compare PPF vs LIC Jeevan Labh which is an endowment plan with guaranteed benefits. Both the schemes help you accumulate a corpus through long term investments and avail tax benefits. So, judge your financial needs and then make a choice. You can even choose both the avenues for their respective advantages and build up a diversified financial portfolio.
The bottom line
LIC plans are protection oriented in nature and so you can choose term plans for providing a sense of financial relief to your family in your absence. For risk-free returns, you can choose a PPF investment scheme and build up a good corpus with disciplined investing every financial year. Choose your goal and ensure that the investment schemes that you pick meet such goals and your risk appetite.