What Should I Choose - ELSS Or PPF?

ELSS (Equity Linked Savings Scheme) 

ELSS is one of the prominent kinds of mutual funds that is also great for tax savings and along with that additional benefit helps you generate future wealth. ELSS works by investing the client’s money in equity and equity related tools making it a viable option for a long term investment.

Public Provident Fund (PPF)

PPF is one of the safer tax saving schemes out there as it is backed by the government as part of National Savings Institute channelling it through the post offices and selected banks. It is one of the safest and stable schemes for long term goals such as retirement planning and child education.

Key Differences Between ELSS and PPF 

Following is the difference between the two schemes:

1. Risk

PPF fund is a safer option out of two as it is backed by the government so it is an attractive option for investors who don’t like risky high yielding investments and look for stable and safe returns whereas ELSS funds are subjected to market risks as they invest in Equity and its related instruments and thus prove to be highly volatile and are suitable for those investors who come in with the approach of high risk for high yield long term gains. 

2. Returns

The interest rate offered by a PPF fund is fixed by the government at the end of every financial quarter with the current interest being 7.9% whereas ELSS does not offer any such fixed commitment; it is highly volatile due to market movements with three year growth averaging at 12% returns.

3. Tax 

PPF investments offer a unique tax benefit where the returns are exempted  from tax completely whereas in ELSS only gains above 1 lakh rupees are taxed as long term capital gains at the rate of 10% .

4. Lock-in Period

PPF funds are made to be focused on long term saving and thus to discipline to that they have a lock in period  of 15 years restricting the total withdrawal  but at the same time one has the option to avail partial funds after the completion of 5 years of investing. ELSS  has a restricting lock in period for only 3 years which can be extended as per the wishes of Investor.

5. Time period and stability

In a PPF funds one has to invest for at least 15 years which can be extended by 5 year terms as the funds are designed to focus on long term saving and are backed by government and thus earn a fixed interest which can even be calculated beforehand and thus don’t prove to be volatile in nature whereas in ELSS one fund one is not bound to invest for a certain period it’s up to the investor’s wishes to decide for how long they want to invest in but these funds are highly volatile as they are subject to market movements and are thus depended on them for their gains.

Conclusion

The choice among these two valid tax saving schemes depend s totally upon what the investor is looking for their funds to achieve and what kind of risk they are willing to take. If their money is dispensable income and one they can keep locked in as by choosing PPF you are bound to be investing for at least 15 years at the same time decision has to be made keeping in mind what kind of gains are you looking for as ELSS offer high yielding gains but are subjected to volatility these factors  need to be kept in mind by the investors before they decide to invest in the tax saving scheme of their choice offering them unique rewards in their own way.

You may also like to read - A Detailed Comparison Of Elss And Life Insurance

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.