PPF vs LIC: Choosing Between Savings and Security
PPF vs LIC: Choosing Between Savings and Security
PPF, short for Public Provident Fund, is a government-backed savings scheme designed for long-term wealth creation. It functions as a fixed-income investment, offering guaranteed interest rates set by the government and reviewed periodically.
Established as India's leading life insurance company, LIC offers a diverse range of insurance plans. These plans primarily function as a safety net against the financial hardship that can arise due to the untimely demise of the policyholder
Similarities Between PPF and LIC
- Tax Benefits: Both PPF and most LIC plans qualify for tax deductions under Section 80C of the Income Tax Act. The maximum deduction amount is currently Rs. 1.5 lakhs.
- Tax-Free Returns: The returns earned on PPF investments are completely exempt from income tax. Similarly, death benefits and maturity benefits from LIC plans (subject to conditions) are also tax-free.
- Partial Withdrawal and Loan Options: While PPF offers partial withdrawals starting from the 7th year and loans between the 3rd and 6th years, specific LIC plans (ULIPs) allow similar flexibilities after a certain policy period.
Key Differences Between PPF and LIC
- Investment Objective: PPF focuses on wealth accumulation through guaranteed returns. LIC plans prioritize providing financial security to your dependents in case of your unfortunate passing.
- Nature of Investment: PPF is a fixed-income scheme, shielding your investment from market fluctuations. LIC offers both guaranteed return plans and market-linked Unit Linked Insurance Plans (ULIPs) that are exposed to market risks.
- Returns: PPF offers fixed interest rates determined by the government. LIC traditional plans provide guaranteed death benefits and maturity benefits, with the bonus component in some plans being variable based on LIC's performance. ULIPs, on the other hand, offer market-linked returns.
- Death Benefit: In case of the policyholder's death, PPF simply pays the account balance (investment + interest). LIC plans offer a predetermined death benefit, which may be significantly higher than the total premium paid.
- Tenure and Investment Flexibility: PPF has a minimum tenure of 15 years with the option to extend it in blocks of 5 years. A minimum of Rs. 100 can be made as a deposit; there is no upper limit. LIC plans offer flexible tenures ranging from 5 years to a lifetime policy. Premium payment terms also vary depending on the chosen plan.
- Maturity Benefit: Upon maturity, PPF pays the total investment amount along with the accumulated interest. LIC plans offer a specific maturity benefit that depends on the chosen plan type. Term plans may not offer any maturity benefit at all, while other plans may provide a lump sum payout or instalments.
Choosing Between PPF and LIC
· For Guaranteed Returns and Long-Term Savings: If your primary focus is building a secure corpus for retirement or a major life goal, and you prefer the stability of fixed returns, then PPF is an excellent option.
· For Life Insurance and Financial Security: On the other hand, if your priority is safeguarding your loved ones financially in case of your untimely demise, then an LIC plan is the way to go. The death benefit ensures your family has a financial cushion during a difficult time.
· Diversification is Key: You can leverage PPF for its guaranteed returns and tax benefits, while LIC safeguards your family's future.
· Beyond PPF and LIC: Depending on your risk appetite and financial goals, you might also consider other investment avenues like mutual funds, stocks, or real estate.
· Seeking Professional Guidance: For a comprehensive financial plan that considers your unique circumstances and future aspirations, consulting a qualified financial advisor is highly recommended. They assess your needs, risk tolerance, and investment goals for a personalized strategy.