Somewhere around December, the email arrives from HR asking for your investment proofs. Within a week you have collected four opinions you did not ask for. Your colleague swears by a tax-saving mutual fund. Your bank's relationship manager has an insurance policy ready. Your father says nothing has ever beaten the provident fund. Someone else mentions a five-year bank deposit.
They cannot all be right, so the question feels like it has one correct answer waiting to be found. It does not. But there is a way to think about it that is more useful than collecting more opinions.
Why a table of past returns does not settle it
The earlier version of this post did what most articles on this subject do: it lined the products up and compared the returns each had produced over the previous five years. Those figures have been removed, for two reasons.
First, a past return describes a stretch of years that has already happened. For anything whose value moves with markets, it is not a rate you are being offered for the next five years — it is a record of the last five. Second, a single number hides the fact that these products are not the same kind of thing. Comparing them on return alone is like comparing a car and a train ticket on top speed.
Four things that genuinely differ
Line the options up on these instead, and the differences become real.
- How the return is set. In some, the rate is announced in advance — fixed by the government or by the bank for a stated period. In others, the value moves with whatever the scheme holds, so there is no rate at all, only an outcome you find out afterwards. Fixed does not mean higher or lower. It means known.
- How long the money is locked. Lock-ins on these products range from a few years to a decade and a half. A lock-in is a genuine cost, not a technicality: it is the price of not being able to change your mind, use the money in an emergency, or move it when your situation changes.
- What else is bundled in. Some are pure investments. Others bundle life cover with an investment, which means part of every rupee is buying insurance and part is being invested, with charges that are harder to see. That is not automatically bad, but you should know when it is happening.
- How the money is treated when it comes back. Products differ in whether the income is taxed each year, taxed when you take the money out, or not taxed at all — and the treatment of several of them has been changed by successive budgets.
The part that has changed most
All of this rests on an assumption that no longer holds automatically: that you are computing your tax in a way that gives you credit for these investments at all. India now has more than one way of computing income tax, and the one that applies to you by default has changed. Under one of them, the deduction that made this whole comparison worth having does not exist.
So before you compare anything, establish which set of rules applies to you this year. Do not rely on this article, or any article written a few years ago, for that. Check the income tax department's own material, or ask a qualified tax professional.
What to weigh, in your own case
- When will you actually need this money? Match the lock-in to that, not the other way round.
- Do you already have separate life and health cover? If you do, you are not obliged to buy more inside an investment.
- Can you explain, in one sentence, what the product holds and where its return comes from? If not, that is worth resolving before the money goes in.
- What are the charges, and what happens if you have to stop paying part-way?
- What is left in your hands after tax on the income, not before it?
Why you will not find a ranking here
This site publishes information and education only. It does not recommend a product to any reader, and it is not in a position to. Beyond that, a ranking would be dishonest: the answer depends on how long you can leave the money, what cover you already hold, what your tax position is this year and how you react when a value falls. Anyone who ranks these confidently for a stranger is usually selling one of them.
This article is general information for education only. It is not investment advice and does not take account of your circumstances. Investments in securities are subject to market risks; please read all related documents carefully before investing.
