Why ULIP mis-selling has become rampant ?
Why is there so much mis-selling of ULIP? How to avoid this mis-selling? Who should take ULIP?
When it comes to saving taxes we often get confused whether to go for traditional Public Provident Fund (PPF) or investing in the stock market through Equity Linked Saving Schemes (ELSS). Here is a primer on what these two tax-saving schemes offer and how to choose between them:
Equity Linked Saving Scheme (ELSS)
What is ELSS: It is a diversified and open-ended equity mutual fund.
Risk Involved: It is a high risk investment, as the money is invested in equities.
Return: The return varies from scheme to scheme. Over the last three years, ELSS schemes have given the average return of around 12%.
Lock-in period: You cannot withdraw money before the completion of three years, which is calculated from the date of investment.
Tax Benefit: A deduction of Rs 1.5 lakh is allowed under section 80C of the Income Tax (IT) Act. On redemption, the long-term capital gains exceeding Rs 1 lakh a year are is taxable at the rate of 10% without the benefit of indexation.
Dos and Dont’s: Before starting a Systematic Investment Plan, understand that that lock-in period is not calculated from your first instalment but is calculated separately for each instalment.
PUBLIC PROVIDENT FUND (PPF)
What is PPF: It is the government backed long term investment scheme, which is eligible for tax deduction under section 80C of IT Act.
Investment Limit: You can invest maximum upto Rs 1.5 lakh in PPF. Minimum investment is Rs 500.
Return: Currently, PPF offers 7.1 % per annum (compounded annually). An investment of Rs 1.5 lakh every year can give a return of Rs 40.68 lakh at the end of 15 years. In 30 years the sum will grow upto Rs1.54 crore.
Risk Involved: It is a government sponsored scheme, so there is no risk involved.
Lock-in period: The lock-in period for PPF is 15 years. After 15 years, the maturity value is retained but you cannot make further deposits. You can apply for an extension in the block of 5 years.
Withdrawal: After six years only for specified reasons.
Tax Benefit: PPF offers triple tax benefits as you get tax deduction under section 80C, the interest earned is tax-free and maturity amount is tax-free as well.
Dos and Dont’s: If you want to invest in PPF, then you should do it before the fifth of every month. This is because the interest is calculated on the minimum balance between the fifth and at the end of the month.
Money9 Take: Choose between the two depending on your risk profile and the liquidity position. ELSS have the shortest lock-in period but they have high risk, too. On the other hand PPF has guaranteed return but comes with a lock in period of 15 years.