Many want to invest but with a host of investment options in the market are confused about where to start. Experts say the solution to that problem is to first understand the various kinds of investments available in India.
To start with, ELSS and PPF along with ULIP, which also has tax benefits under EEE, are some of the retirement-related investment options. Having said that, you need to find out the right investment opportunity for you taking into consideration your current income and future goals.
Equity Linked Saving Scheme – ELSS
ELSS paves the way for those who want to invest their money in mutual funds and also want to save taxes. ELSS or Equity Linked Saving Scheme is a diversified, equity mutual fund that invests in the capital market and selects companies with different market capitalizations.
With investments made in ELSS, one can claim a tax saving under section 80C of the Income Tax Act and get deductions of up to Rs 1.5 lakh in a financial year.
ELSS funds come under the equity category (open-ended), wherein as much as 65 per cent of the money is invested in equity. The rate of return in ELSS purely depends on how well the stock market performs over a long time period, hence, it is dynamic. Additionally, ELSS has the least lock-in period of 3 years, and the returns on ELSS schemes are taxed at 10 per cent, without indexation benefit, if they exceed Rs 1 lakh in any financial year.
Even though there are risks involved while investing in stocks, stocks have the potential to offer better returns in the long run.
Public Provident Fund – PPF
The popularity of PPF is because it being a safe investment option that gives decent guaranteed returns. The PPF account comes with a lock-in period of 15 years, however, there are many benefits to investing in PPF. For instance, it’s a tax-saving scheme. The 80C section of the Income Tax Act provides PPF with EEE (Exempt, Exempt, Exempt) benefit wherein investments up to Rs 1.5 lakh per year, along with the returns earned and the corpus when the fund matures, are all exempted from taxation.
PPF also offers investors the option to make a partial withdrawal from the money invested or take loans after 7 years. The current rate of return in PPF is 7.1 per cent, which makes PPF more attractive than fixed deposits.
Additionally, as it is backed by the government, the risk factor in PPF investment is also quite low.
Unit Linked Insurance Plan – ULIP
ULIP plans include investment plus insurance products where a part of one’s investment is used to insure them, while the remaining is invested in the products of his/her choice. The investment can be a mix of equity, debt, hybrid funds.
An investor can also choose to switch from equity to debt or hybrid as per his/her investment objective during the lifecycle of the investment. The rate of return usually varies in ULIP due to the investors choice of the combination of equity, debt, hybrid funds in his/her investment.
ULIP can also help save taxes as the premium paid is eligible for a tax deduction under Section 80C. Additionally, the returns are also exempt from income tax under Section 10(10D) of the Income-Tax Act, when the policy matures.
Also, note that ULIP investments come with a lock-in period of 5 years.