Saving money for the future is important. But where should you put your savings? Banks give low interest. Stock markets feel risky. What’s the best option?
Two popular choices are ULIP and NPS. Many people get confused between these two. Let’s understand them in simple terms.
What Is ULIP Plan?
ULIP stands for Unit Linked Insurance Plan. It does two things at once. It gives you insurance coverage. It also invests your money.
When you buy a ULIP, part of your money goes towards life insurance. The remaining amount gets invested in the market.
Think of it like this. You give someone 100 rupees. They use 30 rupees to buy you protection. The other 70 rupees they invest to grow your money.
How ULIP Works
You pay money regularly to the insurance company. This is called the premium. You can pay monthly, quarterly, or yearly.
The insurance company splits this money. One part covers the insurance charges. Another part covers their fees and expenses. The rest goes into investments.
Your money gets invested in different places:
- Stock market funds
- Debt funds with bonds
- Balanced funds with both stocks and bonds
You can choose where your money goes. Want more growth? Pick stock funds. Want safety? Pick debt funds.
The value of your investment changes based on market performance. If the market goes up, your money grows. If the market falls, your value drops.
Benefits of ULIP
A ULIP plan gives you insurance protection. If something happens to you, your family gets money.
It helps you save regularly. You commit to paying premiums, so you keep investing.
You get tax benefits. The money you invest can reduce your taxable income. The final amount you get is also tax-free in most cases.
You have flexibility. After some years, you can switch between fund types. You can increase or decrease your premium too.
Understanding NPS
NPS means National Pension System. The government started this scheme. It helps people save money for retirement.
You open an NPS account. You put money in it regularly. This money gets invested. When you retire, you get a pension from it.
NPS is mainly for your old age. You cannot take out money whenever you want. There are rules about when and how much you can withdraw.
How an NPS Calculator Helps
An NPS calculator is a simple online tool for retirement planning. You enter basic details like your current age, retirement age, monthly investment amount, and expected returns. The calculator instantly shows how much money you’ll have at retirement.
For example, if you’re 30 and invest 5000 rupees monthly with 10% returns, it shows your total at age 60. You can try different amounts – what if you invest 3000 instead of 5000? What if returns are 8% instead of 10?
This helps you set realistic goals. Small amounts grow big over 30 years. You make decisions based on actual numbers, not guesses. If your current investment seems low, you can increase it right away.
How NPS Functions
You register for NPS and get a unique number. This number stays with you forever, even if you change jobs or cities.
You decide how much to invest. You can put money monthly or in one big amount yearly.
Your money goes into different investment options:
- Equity funds that invest in shares
- Corporate bonds
- Government securities
You pick how much goes where. Young people usually put more in equity. Older people prefer safer options.
The money grows over many years. When you turn 60, you can take out some money. The rest must be used to buy an annuity that gives monthly pension.
ULIP vs. NPS: Summary
ULIPs combine insurance with investment, offering a 5-year lock-in and high liquidity for medium-term goals. In contrast, NPS is a dedicated retirement tool that locks funds until age 60 but offers significantly lower management fees.
Which is right for you?
- Choose ULIP if: You want insurance and investment in one product, or need to access your money after 5 years.
- Choose NPS if: You already have insurance and want the most cost-effective way to build a retirement pension.
The Power of Both
Instead of choosing one, many investors use ULIPs for protection and mid-term goals, while using NPS as a low-cost engine for long-term wealth. This ensures you are covered today and funded tomorrow.
Planning With These Tools
Start by understanding what is ULIP plan, and how it fits your needs. Check if you need the insurance it provides.
Then look at NPS. Use an NPS calculator to see retirement projections. Enter your details and see the numbers.
Based on the calculations, decide your monthly investment. Split money between different options if needed.
Review your plan once a year. Check if you’re on track. Adjust amounts if your income increases.
Simple Action Steps
List down your financial goals. Insurance needs, retirement target, other savings.
Check in detail. Read documents, understand charges.
Open an NPS calculator. Put in your numbers. See projections.
Talk to people who use these products. Learn from their experience.
Start small if confused. You can always increase later.
Keep learning. Financial planning is a journey, not a one-time task.
Both ULIP and NPS are tools. Used correctly, they help secure your future. Use calculators, understand products, then invest wisely.
Tax Benefits
Both ULIP and NPS give tax benefits. Money you invest reduces your taxable income.
ULIP investments qualify for deduction under Section 80C. Maximum limit is 1.5 lakh rupees per year.
NPS also comes under 80C. But it has an additional benefit. You can claim 50,000 rupees extra under Section 80CCD(1B).
This means NPS gives more tax saving opportunities than ULIP.
The maturity amount from ULIP is tax-free. With NPS, 60% of withdrawal is tax-free. The remaining 40% goes into annuity which gets taxed.
Also Read: Calculate Smarter: How to Use an Income Tax Calculator for Investment Planning
