ELSS vs PPF: Which Tax-Saving Investment is Better for You?

ELSS funds and PPFs are among the most popular investment avenues in India, offering great potential for high returns and tax-saving benefits. These plans also allow you to capitalise on wealth growth and foster disciplined saving habits. Both investment schemes offer tax benefits under Section 80C of the Income Tax Act 1961. However, there are distinct differences in the features, risks, and returns of PPFs and ELSS mutual funds. Understand your risk appetite and consult a financial advisor, if need be, to define your investment horizon and the amount you want to invest. A basic comparison of ELSS vs PPF can help you understand if you should invest in both or choose one based on your financial goals and requirements.

Table of Content

• What Is Elss Funds Investment?
• Why Invest in ELSS
• How to Invest in ELSS?
• What Is PPF Investment?
• Elss Vs Ppf: Major Differences

What Is Elss Funds Investment?

The full form of ELSS is Equity Linked Savings Scheme. As suggested by its full form, an ELSS investment is basically a mutual fund investment that focuses on stocks, equity, and equity-related instruments. As the primary focus of ELSS funds is on equities, they come with the potential for decent market-lined returns. However, it is important to remember that market volatility can impact returns significantly.

Why Invest in ELSS?

• ELSS funds have a three-year lock-in period, which is lower than most other investment options. This ensures that investors have the flexibility to withdraw their funds to meet short-term financial requirements.
• Contributions made towards ELSS come with tax benefits. They are eligible for tax deductions of up to Rs 1.5 lakh.
• This mutual fund invests heavily in stocks, which tend to perform well in the long run, offering opportunities to get better returns.

How to Invest in ELSS?

• Using an online mutual fund investment platform.
• With an existing demat account.
• Via registrars.
• Consult with an agent.

What Is PPF Investment?

PPF, or Public Provident Fund, was introduced by the Government of India to encourage people to save for their retirement. This savings scheme offers tax benefits and guaranteed returns. You can deposit any amount of money, from Rs 500 to Rs 1.5 lakh per year in the PPF account. PPFs are a safe investment option, but they also have a fixed interest rate and a long lock-in period of 15 years, which can also be extended by 5 years.

Why Invest in PPF?

• PPFs are considered to be a risk-free investment. It has a fixed interest rate that is set every quarter by the government.
• Contributions made towards PPFs come with tax benefits. They are eligible for tax deductions of up to Rs 1.5 lakh.
• Interest generated at maturity is tax-free.

How to Invest in PPF?

• Get the application form from a nearby post office branch or sub-post office branch.
• Visit any bank that offers PPF services.
• You can open a PPF account online. Several leading banks are offering this service through their official websites.
• You can deposit your investment as a lump-sum amount or SIP. Under SIP, you invest a regular amount of money periodically (generally monthly).

Suggested Read : Top 10 Reasons To Save Money And Invest For Future

Elss Vs Ppf: Major Differences

Nature of Investment

ELSS funds primarily invest in equities and securities, which leads to better returns. While ELSS funds come with their own risks, they also offer a pathway to increased returns. On the other hand, PPF is a debt scheme that is backed by the government and has been designed for long-term investment and savings. PPFs are a safer investment option.

Limits

There is no upper limit for ELSS investments, but tax deductions are capped at a maximum of Rs 1.5 lakh. PPFs require an initial deposit of Rs 500, and you can invest a maximum of Rs 1.5 lakh per year.

Lock-In Period

ELSS funds come with a low lock-in period of 3 years, after which, you can withdraw the amount you invested. PPFs, on the other hand, have a lock-in period of 15 years. However, you also get the option of partial withdrawal after 7 years.

Risk Profile

ELSS investments are susceptible to market risks, and the investment value keeps fluctuating with variations in stock prices. PPFs are backed by the government to provide fixed, improved returns. That is why PPFs are considered a low-risk investment.

Returns

ELSS funds are market-linked, so their performance varies based on the performance of the stocks. This also impacts long-term returns. PPFs come with predetermined, fixed return rates that are set by the government, allowing you to get an idea of the returns that you can expect.

Withdrawals

You cannot withdraw the amount invested in ELSS funds during the lock-in period. After the three-year period is over, you will be able to withdraw the entire investment, or you can just withdraw a portion of it. You can withdraw a partial amount of your PPF investment after seven years. Post maturity, the account can also be renewed, with or without additional investments.

Market-Linked Returns Vs Fixed Returns

ELSS funds are linked directly to market performance, so returns are always subject to market risks. PPFs offer steady, balanced returns. This is because PPFs have fixed returns that are calculated based on the interest rates set by the government.

It is crucial that you have an understanding of your financial goals and risk appetite, so you can build an investment strategy that is in alignment with your needs. With tax-saving investments, whether you want the potential of higher returns of ELSS funds or the stability and guaranteed returns of PPFs, it is important to make wise investment decisions, based on your investment horizon.