Unlike PPF and Provident Funds which are government guaranteed long term saving options, Private Pension Plans are launched and managed by private insurance players. These plans are professionally managed by fund managers and can range from debt funds to equity linked plans. In Equity linked pension plans, the fund managers invest a portion of the fund into stock markets to take advantage of better long term growth rate of equity markets. Such plans are also knows as Unit Linked Insurance Plans or ULIPS.
Some of the features of ULIPs over PPF / Provident Funds are:
- ULIPs can be allocated to invest into Equity markets and hence these schemes have a potential to deliver capital appreciation over a long term.
- There is no maximum limit which can be invested in ULIPs. Maximum yearly limits of Rs. 70,000 like in PPF are not applicable in ULIPs.
- One can invest in ULIPs either via a one time single premium or via monthly / yearly regular premiums.
- Most ULIPs can have a minimum vesting age, generally between 40-50 years after which the benefits of ULIPs can be obtained by the investor. Upto one-third of the fund can be withdrawn by the investor on the vesting age and remaining can be taken by way of annuity.
- Generally ULIPs also provide a life insurance to the investor charges of which are deducted from the investor's fund balances.
- The investor has to pay charges to the insurance company such as fund management charge, mortality charges, premium allocation charges, etc. which are generally deducted on a monthly basis from the investor's fund. This is contrary to the PPF or Provident Fund where no charges are deducted from investor's fund balances.
- Premature withdrawals after 3 years are generally allowed under ULIPs subject to a surrendering charge which becomes zero for most of the insurance companies after 5 years of existence of the ULIP.