Comparison between schemes of UTI, LIC, PPF
UTI’s RBP is open between the ages of 18 to 60
years. Under the scheme, one has to wait till 58 years
for the pension to start. You are also not given any
option of allowing the fund to grow further Also, the
pension is payable at any age (say the late forties to
early fifties).
Among the LIC policies, Jeevan Suraksha has an entry age
25 to 65 years and the pension starts from the age of 55
years. For Jeevan Dhara, the entry age is 18 to 65
years, with pensions starting from 50. Jeevan Akshay has
an entry age of 50 years. In return for the purchase
price paid, a monthly pension is paid during the
lifetime of the purchaser.
Under PPF, there is a lock-in period of three years from
the date you enter the scheme. After this you can borrow
upto 25 per cent of the money in your account as it
stood two years previously. The loan is repayable in 25
months and bears interest at 1 per cent per annum
(effectively 13 per cent).
In the UTI scheme you have an easy exit option. UTI
purchases the units at a 10-per cent discount on the net
asset value (NAV) which is declared regularly by them.
Amongst the LIC schemes, you are eligible for policy
loans under Jeevan Suraksha but not for Jeevan Dhara
(deferred annuity with profits) and Jeevan Akshay.
So for a loan under Jeevan Suraksha it is calculated
depending on the surrender value (or cash value payable
by LIC if the policy-holder terminates the contract
before its official expiry date) the policy would have
acquired. In the case of cash policies, 90 per cent of
the surrender value is given as loan while in the case
of what LIC calls the "SSS mode" (premium paid
yearly, quarterly or monthly) policies, 80 per cent of
the surrender value is given as loan. The loan is
charged at 10.5 per cent.
Surrender value for an endowment-type policy can be
calculated thus: The paid-up value multiplied the
surrender value factor divided by 100. The surrender
value factor is determined by a formula that LIC has
worked out.
Under Jeevan Dhara, you can reclaim the surrender value
of the policy. Policies effected by single premium can
be surrendered for cash at any time after completion of
three years from the date of issue but before the date
on which annuity vests. This is for an amount equal to
80 per cent of the single premium if surrendered before
expiry of five years from the date of issue and 90 per
cent of the single premium thereafter. Under policies
effected by annual premia, a cash surrender value equal
to 90 per cent of all premia paid excluding the first
year’s premium is allowed.
PPF is more of a tax concession scheme. Under section 88
of the Income Tax Act, annual contributions up to a
limit of Rs 60,000 qualify for tax rebates. The taxation
of income and capital appreciation under the UTI plan
will be subject to prevalent tax laws under certain
conditions. Income from units under all schemes of the
UTI including RBP enjoy a rebate of 20 per cent within
an overall limit of Rs 60,000 under section 88 of the IT
Act.
LIC policies have an enormous tax-saving benefit. Jeevan
Dhara and Jeevan Akshay premia enjoy a rebate of 20 per
cent under section 88. This rebate is deductible from
the total tax payable by individuals or a Hindu
undivided family (HUF). Jeevan Suraksha has a few other
benefits. Contributions under it upto Rs 10,000 per year
are eligible for tax exemption under section 80 CCC(1)
of the Income Tax Act. Apart from this, commuted pension
(amount one gets at the start of the pension) of 25 per
cent received in lump sum at the start of the pension is
also exempt from income tax.
The PPF scheme pays 12-per cent tax-free, whereas the
sky is the limit for RBP after tax. It would not be fair
to compare the LIC schemes with these as they offer the
benefit of a risk cover that no other savings plan
provides.
Rates of return can be worked out for various LIC
schemes but a number of assumptions such as time of
death after date of commencement of policy, tax saved
and invested on certain rates of return make it highly
variable.
For example, LIC’s Jeevan Akshay offers a gross annual
return of nearly 12.7 per cent. Most company FDs, and
debentures offer a rate of return of 12 to 14 per cent
but these investments are locked in for shorter periods
compared to LIC policies. An important point to be noted
is that under the PPF schemes, gratuity and loyalty
additions can be changed but they are guaranteed under
the LIC and UTI schemes.
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