The choice between the Public Provident Fund (PPF) and Life Insurance Corporation (LIC) policies stands as a good option for individuals seeking to secure their financial future. Both PPF vs LIC offer benefits that serve as pillars of financial stability, each with its unique features and implications. With this blog, we will try to provide valuable insights to our readers to help them make informed decisions.
What Is PPF (Public Provident Fund)?
The Public Provident Fund (PPF) is a popular and tax-efficient long-term savings and investment scheme offered by the Government of India. It provides individuals with a secure method for building a substantial amount for their future financial needs, especially for retirement planning.
Key features of the Public Provident Fund (PPF) include:
- Long-Term Savings: PPF is a long-term savings and investment plan that provides stability and financial security. It has a 15-year lock-in period.
- Tax Benefits: PPF is a tax-efficient investment option since it provides tax deductions on contributions, tax-free interest, and EEE (Exempt-Exempt-Exempt) status.
- Safety and Security: The Indian government backs PPF, offering a high degree of security for invested money.
- Flexible Contributions: Within set restrictions, PPF enables individuals to make regular contributions in amounts that are flexible.
- Loan Facility: Account holders can apply for loans against the balance in their PPF accounts after a predetermined number of years, which serves as a source of liquidity when needed.
What Are LIC (Life Insurance Corporation) Policies?
The Life Insurance Corporation (LIC) is a renowned government-backed insurance company in India that offers a wide range of life insurance policies and investment products. LIC policies are designed to provide financial protection, wealth creation, and long-term savings options for individuals and families.
These policies offer various benefits, including life cover, savings, and investment opportunities, making them a popular choice for individuals seeking financial security and stability.
Benefits of LIC Policies:
- Life Cover and Financial Protection: LIC policies offer life insurance coverage, providing financial protection for policyholders and their families in the event of an unforeseen demise.
- Wealth Creation and Savings: LIC policies serve as effective savings and wealth creation tools, allowing policyholders to build a substantial corpus over time.
- Tax Benefits: LIC policies offer tax benefits under Section 80C and Section 10(10D) of the Income Tax Act, allowing policyholders to reduce their taxable income.
- Financial Planning and Retirement Security: With a diverse portfolio of policies, LIC caters to retirement planning and long-term financial goals.
- Market-Linked Returns with ULIPs: Unit-Linked Insurance Plans (ULIPs) offered by LIC provide the dual benefit of life cover and market-linked returns.
- Periodic Payouts with Money-Back Plans: LIC’s money back plans offer periodic payouts during the policy term, providing liquidity at regular intervals to meet various financial needs
Comparative Analysis: PPF vs LIC
While both options hold promise for your financial future, understanding their distinct features is crucial to choosing the one that is the best option.
In the table given below, we will understand the key features of PPF vs LIC, which will help us plan our financial journey wisely:
| Feature | LIC(Life Insurance Corporation) | PPF (Public Provident Fund) |
| Investment Type | Debt (Government backed) | Debt scheme |
| Eligibility | Indian resident (Age limits may vary depending on the policy) | All Indian citizens (except Hindu Undivided Families) |
| Minimum Investment | Varies depending on the chosen plan (Premiums can start as low as a few hundred rupees) | ₹500 per year |
| Maximum Investment | No maximum limit (Depends on the chosen plan and your insurability) | ₹1.5 lakh per year |
| Returns | Variable returns (Based on policy type, bonuses, and market performance) | Guaranteed fixed-rate (currently 7.10%) |
| Tax Benefits | EEE (Partially) – Premiums paid qualify for deduction under Section 80C, maturity amount tax-free under specific conditions | Entire investment and earned interest tax-free
|
| Lock-in Period | Varies depending on the chosen policy (Some plans have shorter tenures) | 15 years |
| Liquidity | Moderate – Loan facility after 3rd year, surrender value after policy surrender period (may involve deductions) | Limited liquidity until maturity |
| Risk | Low to Moderate (Depends on the policy type) | Low (considered safe and stable) |
| Suitability | Individuals seeking life cover, long-term financial security for dependents, and potential for higher returns (with some risk tolerance) | Risk-averse investors seeking guaranteed returns and tax benefits |
Choosing The Best Option:
Both promising security and growth, choosing the right path requires deciphering their distinct offerings to align with your unique financial goals and risk tolerance.
Risk Tolerance:
PPF: Low risk, guaranteed fixed returns. Ideal for those seeking stability and security.
LIC: Risk level varies with policy type. Some policies offer guaranteed returns, while others are linked to market performance. Choose based on your comfort with risk.
Financial Goals:
PPF: Best suited for long-term goals like retirement or child education, where steady growth and tax benefits are priorities.
LIC: Can cater to diverse goals, including protection, savings, investment, and tax benefits. Evaluate specific needs to select the right policy.
Liquidity Needs :
PPF: Limited liquidity, with partial withdrawals allowed after 5 years. Consider this long-term commitment.
LIC: Offers more flexibility with loan options against surrender value, depending on policy terms.
Tax Benefits:
PPF: Entire investment and interest are tax-free.
LIC: Premiums are eligible for tax deductions under Section 80C, but maturity benefits are partially taxable.
Life Insurance Coverage:
PPF: No life insurance coverage.
LIC: Many policies offer life insurance benefits, providing financial protection for your family.
Conclusion:
The choice between the two depends on individual financial goals, risk tolerance, and investment preferences.
Investors should carefully assess their financial needs, risk appetite, and the desired tenure of investment before making a decision. It is also advisable to seek professional advice to ensure that the chosen investment aligns with individual financial objectives.
Ultimately, whether one opts for the stability of PPF vs LIC or the dual benefits, a well-thought-out and informed decision is key to achieving long-term financial success.
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Frequently Asked Questions?
Q. What is the current annual contribution limit for a PPF account?
A. The current annual contribution limit for a PPF account is Rs. 1.5 lakh.
Q. Can I increase my PPF contribution beyond the prescribed limit?
A. No, the annual PPF contribution cannot exceed the prescribed limit of Rs. 1.5 lakh.
Q. What happens if I exceed the annual PPF contribution limit?
A. Any excess amount above the annual PPF contribution limit will not earn interest and may be returned.
Q. Are there any minimum deposit requirements for a PPF account?
A. Yes, a minimum deposit of Rs. 500 per financial year is required to keep a PPF account active.
Q. Is there a maximum tenure or maturity period for a PPF account?
A. The maturity period for a PPF account is 15 years, but it can be extended in blocks of 5 years indefinitely.
Q. How is the PPF interest calculated, and is it subject to any limits?
A. PPF interest is calculated annually and compounded. The rate is set by the government and is subject to periodic revisions.
Q. Can I open multiple PPF accounts to maximize my savings?
A. No, individuals are allowed to open only one PPF account in their name. Joint accounts and accounts on behalf of minors are permissible.
Q. What are the implications of not depositing the minimum amount in a PPF account in a year?
A. Failure to deposit the minimum amount of Rs. 500 in a PPF account in a financial year may lead to the account being declared inactive.
Q. How can I check if I have reached the maximum limit for total contributions in my PPF account?
A. You can check your PPF account statement or contact the bank/post office where the account is held to verify the total contributions made.
