The Best Savings Scheme in India: LIC, NPS, PPF or ELSS?

Choosing the right savings scheme in India can be a daunting task, especially when there are multiple options available, such as LIC (Life Insurance Corporation), NPS (National Pension System), PPF (Public Provident Fund), and ELSS (Equity Linked Savings Scheme). Each of these schemes offers its unique benefits and drawbacks, making it essential to analyze them based on your financial goals, risk appetite, and investment horizon. This article will provide a comprehensive comparison to help you make an informed decision.

LIC Life Insurance Corporation

Type

LIC is primarily a life insurance company that also offers investments with a savings component. While it is not designed as a pure investment product, it does provide a dual benefit of insurance and savings.

Returns

LIC investments typically offer returns of around 4-6% per annum, which is generally lower than market-linked investments. The returns might vary depending on the policies and plans you choose.

Risk

LIC investments are considered low risk. This is due to the fact that the funds are primarily invested in government securities, bonds, and other secured instruments.

Liquidity

There is low liquidity associated with LIC investments. Funds are tied up for a longer period, which is similar to other long-term investment schemes.

Best For

LIC is suitable for individuals seeking a combination of life insurance coverage with a savings component. If you are looking for a conservative investment that provides you with long-term protection alongside savings, then LIC can be a good choice.

NPS National Pension System

Type

NPS is a retirement savings scheme that offers tax benefits for investors. It is designed to help employees save for their retirement, providing them with both a savings component and a secure source of income in old age.

Returns

NPS historically provides market-linked returns, which have been around 8-10% per annum. This makes it an attractive option for individuals who are looking for higher returns on their investments.

Risk

NPS investments are considered moderately risky. This is because the funds are typically invested in a mix of equities, government securities, and other debt instruments. The allocation is decided based on the load choice (voluntary or mandatory) at the time of joining NPS.

Liquidity

Liquidity in NPS is restricted to a certain extent. However, limited premature withdrawals are allowed under specific conditions, such as retirement, employment loss, or due to certain medical conditions.

Best For

NPS is ideal for long-term retirement planning. It offers tax benefits on contributions and investment returns, making it a popular choice among salaried individuals and self-employed professionals who are looking to secure their future.

PPF Public Provident Fund

Type

PPF is a government-backed savings scheme that is designed to provide tax benefits to investors. It is a popular choice for risk-averse investors who are looking for a secure long-term investment option.

Returns

As of 2023, the interest rate on PPF is around 7.1%, which is subject to change. The interest earned on PPF is tax-free, making it an attractive investment option.

Risk

PPF is considered very low risk. This is due to the fact that the funds are backed by the government, which guarantees the safety of investments.

Liquidity

There is low liquidity associated with PPF. However, partial withdrawals are allowed after a minimum holding period of 6 years.

Best For

PPF is suitable for risk-averse investors who are looking for a secure long-term investment with guaranteed returns. If you are looking for a conservative investment that is backed by the government, then PPF can be a good choice for you.

ELSS Equity Linked Savings Scheme

Type

ELSS is a mutual fund scheme that offers investors tax savings under Section 80C of the Income Tax Act, 1961. This makes it an attractive option for individuals looking to save on their tax liability while also pursuing potential for higher returns.

Returns

ELSS mutual funds historically offer returns ranging from 10-15% per annum or more, depending on market conditions. However, these returns are not guaranteed and are subject to market volatility.

Risk

ELSS investments are considered high risk. This is because the funds are invested in the equity market, which can be volatile and lead to significant upward or downward movements in value.

Liquidity

ELSS funds have a lock-in period of 3 years, meaning that you cannot withdraw your investments until the end of the lock-in period.

Best For

ELSS is the ideal choice for investors who are looking for a combination of tax savings with potential for higher returns. If you are willing to accept the associated risks to potentially achieve higher returns, then ELSS can be a good option for you.

Comparison Summary

Conclusion

Your choice of the best savings scheme in India should align with your financial goals. Whether you prioritize long-term security, retirement planning, or potential for higher returns with tax benefits, there is a savings scheme that can meet your needs. Consider consulting a financial advisor to tailor your investment strategy based on your personal circumstances and long-term financial objectives.