LIC Endowment plans or PPF?

Could you please let me know where would I invest in LIC Endowment plans or PPF?
The reason why I am asking because the return on LIC Endowment plans are at the range from 4% to 7%, but in PPF the retuns are 8%.

Thanks,
Sonali

The following are some points to remember about PPF and LIC Endowment plans.

1) In PPF, the Ministry of Finance decides the rate of return. Currently it is locked at 8% (unless the government decides to change it). With LIC endowment plans (except for guaranteed return plans), the rate of return is not fixed. It depends on the bonus which is declared each year based on the profits of the company. You might get better bonus some years and less bonus in other years.

2) PPF offers better returns at 8%. The returns from LIC endowment plans are in the range of 4.5% to 7%.

3) LIC policy can lapse if you donot pay premiums on time. With PPF you do not have these headaches as the minimum investment per year to keep your account active is just Rs.500

4) If you need to make any withdrawals, with LIC policy you have to take a loan against your policy. The interest you pay against the loan is MUCH higher than the interest you earn on your policy. With PPF you can make partial withdrawals after 7 years. In dire circumstances you can take a loan after 3 years.

5) LIC endowment plans have no flexibility. The premium amount and the term of the policy is fixed at the time of taking the policy. With PPF you have lot of flexibility. The term of the policy can be extended depending on your convenience. The amount you invest e can also vary year after year. For instance 3 years down the road, if you found a better investment avenue, then you can just contribute Rs.500 to PPF and invest the balance in the investment of your choice. With LIC, once commited you have no option to change.

6) In PPF, you benefit from the power of compounding. So the interest you earn keeps increasing with time. There is no compounding effect in LIC. The bonus you get is based on the sum assured and has no compounding effect.

7) Incase you forget to contribute to PPF any particular year, the penalties to revive your account are very very nominal. Incase of LIC endowment plans, the penalties are sharp.

Overall any day I would go and recommend investing in PPF and take a Term plan for insurance rather than invest in LIC Endowment plan.

Hope this helps!

Public provident fund i.e PPF is a better option. It is tax free, making deposit in ppf account is deductible under section 80C, its interest in also tax free and also withdrawal is tax free. It also provides a good interest rate.