ELSS vs PPF - Which Saves More Tax ? | ज़्यादा Tax Savings किसमे ?
ELSS (Equity Linked Savings Scheme) and public provident fund PPF, both help you save taxes, but apart from that, they differ on many parameters. ELSS investment relies on equity and has higher volatility compared to PPF which is a debt instrument with negligible volatility.
With both ELSS and PPF, you can get a maximum deduction of INR 1.5 Lakh under Section 80C of the Income Tax Act, 1961.
Many people ask about PPF vs ELSS for making tax-saving investment decisions. So, let’s understand and compare ELSS mutual funds and PPF for their suitability.
PPF vs ELSS
What are ELSS funds?
ELSS is the tax saving mutual fund which serves both the purpose of saving taxes and help you create long term wealth.
ELSS funds generate returns by primarily investing in equity and equity-related instruments. This makes it a suitable investment option for a person with long term goals.
You get a combination of the highest gain of 12% and above, as well as the lowest lock-in period of 3 years by investing in ELSS, which is the best investment option when compared to other options with tax deductions under Section 80C of the Income Tax Act, 1961.
Plus, you also get a diversified equity portfolio by investing as low as INR 500 per month.
What is PPF investment?
PPF is a Government of India backed debt asset, suitable for long terms financial goals such as children’s education and retirement planning. By investing in PPF, you can claim tax deductions under section 80C up to Rs 1.5 lakh.
PPF carries a longer lock-in period of 15 years which can further be extended for another 5 but, there is a facility of premature withdrawal from 6th year onwards.
You can also avail of a loan on your PPF account and that facility is available from the 3rd to the end of the 6th financial year. The loan amount is set at 25% of the outstanding balance amount of the two preceding years and needs to be repaid in 36 months. However, It is to be noted, that the interest charged is 2% over the present interest rate.
ELSS vs PPF
Below are the differences between ELSS and PPF:
1. Risk
Public Provident Fund PPF investment is low risk because it is backed by the Government of India. Hence, they are a better investment option for highly risk-averse investors.
ELSS funds, on the other hand, invest in equity and equity-related instruments and are exposed to market risks, which makes them a better investment option for those who are willing to risk volatility for the sake of long term gains.
2. Returns
The rate of interest on PPF investment is decided by the Government of India with the present rate being 7.9%.
The returns on ELSS depend on market movements. The 3-year annualized historical returns on ELSS funds are 12% and above. You can also use Scripbox’s mutual fund calculator and estimate the returns and wealth created.
3. Tax on Returns
PPF investments carry a tax benefit of the returns being totally tax-free. To estimate the returns and maturity you can use Scripbox’s PPF calculator.
In ELSS, gains of over INR 1 Lakh are considered long-term capital gains and are, therefore, taxed at the rate of 10%.
4. Lock-in Period
PPF investment has a lock-in period of 15 years, with an option to make a partial withdrawal after the completion of 5 years.
Equity linked saving schemes ELSS, carries a lock-in period of only 3 years. But you can keep the investment for a longer duration as well.
5. Time Horizon
You can invest for 15 years in a PPF account with an additional extension of 5 more years.
In ELSS investment, there is no time horizon and you can continue with the investment as long as you wish.
6. Volatility
The funds collected in PPF are used by the Government where you can earn a fixed interest. Hence, there is no question of volatility.
ELSS funds are invested in equity and are subject to market fluctuations and volatility.
7. Offered Through
PPF is offered through banks and the post office. To invest, you would need to open a PPF account, followed by a KYC process. Plus you can even open a joint PPF account for and with a minor.
ELSS is managed by a fund manager and offered by the mutual fund house. Hence, you can invest directly through the AMC website, online investment portals or through Demat agents and registrars.
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