ULIP vs NPS vs ELSS – 3 retirement investment options compared

Retirement marks the beginning of your golden years. To live a stress-free retirement life, you should start by investing early in the right pension plan as well as save enough money. There are several pension plans like a Unit Linked Insurance Policy, National Pension Scheme (NPS), and Equity Linked Savings Scheme (ELSS) that help you save tax and obtain decent returns during your retirement. However, all these three retirement investment options have different features and target different investors.

Before choosing either of these three retirement investment options for your golden years, let’s begin by understanding the meaning of these plans in detail:

What is ULIP?

A ULIP Policy is a combination of investment and insurance. These dual benefits of ULIP Policy allow you to not only financially secure your family but also participate in the equity markets thereby enjoying maturity benefits if you live the term. Moreover, it offers flexibility in the selection of funds like equity funds and debt funds as well as switching between these funds. The returns obtained on your investment depends on your risk appetite and fund selection.

What is NPS?

NPS is a retirement centric investment plan, which is managed by the Pension Fund Regulatory and Development Authority (PFRDA). When you invest in NPS, your investments will be allocated across equity and debt funds until you reach 60 years. It follows a passive approach to investment. While you can withdraw 60% of your corpus as a tax-free amount, you are eligible to receive a pension for a lifetime.

What is an ELSS?

Being a market-linked investment plan, it has a lock-in period of three years. On the completion of your lock-in period, the plan allows you to follow it as an open-ended scheme. Additionally, it is beneficial if the markets are down after your lock-in period has ended. You can redeem your units after the market bounces back to garner high returns.

As mentioned above, all these three options are different. However, a ULIP Policy is the most preferred option for retirement as it provides dual retirement benefits. In addition to this, there are other reasons why you should choose a ULIP Plan over an NPS or ELSS. Let’s take a closer look at these reasons mentioned below:

  1. Tax benefits

A ULIP Policy provides you with tax-saving benefits according to Section 80C and Section 10(10D) of the Income Tax Act, 1961. Under Section 80C, you can claim tax deductions up to Rs. 1,50,000 on taxable income. The maturity pay out, which your nominees receive on your demise is tax-free pertaining to specific conditions under Section 10(10D).

  1. Switching policy

Under a ULIP Policy, you can select between equity funds and debt funds based on your risk appetite. While an equity fund offers high returns, you will receive low returns on selecting debt funds. However, if you’re unsatisfied with the returns, you can switch between these funds. For instance, if you’ve initially selected debt funds and you’re not happy with the returns, you can switch to equity funds.

Note: Select equity fund when you’re young since you can afford to take risks at an early age of life. As you grow older, switch to debt funds to reduce risks during retirement.

  1. Lock-in period

A ULIP Policy has a lock-in period of five years. Therefore, you should start by investing in a ULIP Policy at an early age. When you’re young, you have more time in your hands to build a large retirement corpus. Moreover, it will become easier to fulfil your post-retirement goals like travelling, pursuing new hobbies, and so forth with the help of the accumulated corpus.

Conclusion:

To sum up, purchasing a ULIP policy will bring you a step closer to your retirement goals. A ULIP Plan will financially secure your loved ones as well as help you in achieving your dreams, which you left behind during your active working years. It offers an uninterrupted flow of income for the financial well-being of you and your entire family during retirement.

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