ELSS vs PPF Business by Claire David White - November 21, 20200 Investment options that provide tax benefits and an opportunity to accumulate wealth over time are always a desirable combination in the investing community. The Government of India, u/s 80C of the Income Tax Act offers a list of tax-saving investments that deliver tax deductions to investors. These tax-saving investments include PPF (Public Provident Fund), ULIP (Unit-linked Investment Plan), ELSS (Equity-linked Savings Scheme), Life insurance, EPF (Employees’ Provident Fund), etc. As all these investments offer an element of tax saving, investors are often confused in picking the apt scheme for their investment portfolio. This article aims to offer a comparative analysis between ELSS and PPF schemes to aid investors to choose the right scheme. What is an Equity-Linked Savings Scheme? ELSS schemes belong to the family of equity investments. Hence, they invest a minimum of 80% of their total assets in equity and equity-related instruments. Investments in ELSS mutual funds qualify for tax deductions u/s 80C of the IT Act for an amount of up to Rs1.5 lac. The amount you invest in ELSS is deducted from your taxable income, which helps to lower the income tax amount you are liable to pay. ELSS funds have a lock-in period of three years. Returns earned on ELSS tax saving mutual funds – capital gains and dividends are entirely tax-free. What is a Public Provident Fund? PPF is a government-backed savings scheme that provides a fixed and predetermined rate of interest. These rates are revised and paid by the Government of India each quarter. PPF is one of the most popular and traditional long-term investment options due to its combine benefits of returns, safety, and tax-saving qualities. PPF schemes have a maturity period of fifteen years. The amount invested in PPF schemes in a particular year can be claimed under Section 80C deductions of up to Rs1.5 lac. ELSS vs PPF Let’s understand the differences between PFF vs ELSS funds: PPF ELSS Risk As PPF is an initiative by the Government of India, these investments are relatively safe. As ELSS funds are equity based mutual funds, the investments are subject to market risks. Returns The Government of India declares the rate of interest for PPF investments each year. It is usually between 7% to 8% p.a. The returns on ELSS mutual funds vary depending on the scheme chosen. However, an investor can expect average returns around 12%-15%. Tax benefits These schemes enjoy EEE benefits (Exempt Exempt Exempt) – The invested amount is exempt from taxes at the time of investment, accumulation, and redemption. There is a 10% LTCG tax applicable on ELSS investments for returns above Rs1 lakh. Lock-in period PPF investments have a lock-in tenure of 15 years. (After the 5th year partial withdrawals are allowed) ELSS investments have a lock-in tenure of 3 years. Also, there is no possibility of premature withdrawal. Investment horizon You cannot invest in PPF schemes for more than 15 years. However, you can extend to 5 more years. ELSS investments have no upper limit. Whether you go forward with ELSS funds or PPF schemes, entirely depend on your investment portfolio. Your investments should ideally align with your investment horizon, financial goals, and risk appetite. So, if you are a risk-averse investor, you might consider going with PPF schemes. However, if you are prepared to ride out the volatilities of the market, invest in ELSS funds for higher returns. Happy investing!