PPF vs. ELSS – The Best Tax Saving Investment Option

PPF vs. ELSS – The Best Tax Saving Investment Option

PPF vs. ELSS – The Best Tax Saving Investment Option

Saving plays an essential role in fulfilling the growing needs of every individual. But, these savings are only beneficial for any individual if it is able to fulfil every need after beating the inflation rate. While every investor is trying to save some money, tax is an important aspect which should be considered to save and invest in the best tax efficient investment options.

Under Section 80C of the Income Tax Act, 1961, every individual can save and invest for the betterment of their future and claim an exemption on various investment options up to Rs.1.5 lakhs per annum in deductions of the investments made. Let us understand and compare the two most popular tax saving schemes – Equity Linked Savings Schemes (ELSS) and Public Provident Fund (PPF). Both, PPF and mutual funds online are easy to open investment options.

What is an Equity Linked Savings Scheme (ELSS)?

ELSS is a type of mutual fund scheme which gets the benefit of tax exemption under Section 80C of the Income Tax Act, 1961. The performance and returns of these mutual fund investments depends on the market volatility. But, in the longer run, ELSS has been the most popular investment option which provides higher returns when compared to other traditional investment choices.

Things to know about ELSS
  • You can invest any amount of money in an Equity Linked Savings Scheme but only deduction of up to Rs.1.5 lakh per annum is allowed under Section 80C of the Income Tax Act, 1961
  • One of the best tax saver investment options which offer potentially higher returns with short term lock-in periods
  • Allows investment through lump sum mode as well as SIP online
  • The returns on Equity Linked Savings Schemes are exempt from tax
  • Equity Linked Savings Scheme or Tax Saver Mutual Fund comes with a lock-in period of 3 years. But, you can continue investing in ELSS even after the lock-in period of 3 years

What is a Public Provident Fund (PPF)?

Public Provident Fund was introduced by the Government of India. It was launched to encourage investors to save and invest for their future. Any Indian Citizen can invest in Public Provident Fund (PPF) and earn 7.6% p.a.* return on their investment.

Things to know about PPF
  • You cannot invest more than Rs.1.5 lakh per annum in a PPF account. But, same as ELSS, you can claim a deduction of up to Rs. 1.5 lakh u/s 80C of the Income Tax Act, 1961
  • Nomination Facility in PPF is also available
  • The interest earned is free from tax. The current interest rate for PPF is 7.6% p.a.*
  • One individual is allowed to have only one PPF account on his/her name
  • PPF allows the investors to invest their money through either lump sum deposit or instalments. If an investor opts to invest through instalment mode, they can invest in a maximum of 12 instalments in a year
  • PPF is a risk-free investment which comes with a lock-in period of 15 years. It can be extended for lock-in period of 5 years post the mandatory lock-in period
  • Minimum investment amount for a PPF account is Rs.500

*PPF Interest Rate is subject to change without any prior information.

ELSS vs. PPF: Which is better?

Particulars PPF
(Public Provident Fund)
ELSS
(Equity Linked Savings Scheme)
Risk Involved No Risk involved ELSS issubject to market risks
Rate of Return 7.6% p.a.* (Current Rate of Return) 12-14% (Potential Rate of Return – Being market-linked)
Tax Benefits Exempt from Taxes Exempt from Taxes
Lock-in period 15 Years 3 Years
Investment Amount Up to Rs.1.5 lakhs You can invest any amount that you desire. But, will only get a deduction of Rs.1.5 lakh u/s 80C of Income Tax Act, 1961

*PPF Interest Rate is subject to change without any prior information.

Conclusion
PPF is a relatively safer investment option than ELSS, but it offers lower rate of interest and comes with longer lock-in period than ELSS. ELSS is a better tax saving investment option as it offers the same tax benefits as PPF and potentially higher returns on the investment made. Also, you can use a PPF calculator and an SIP calculator to check and compare the returns on the amount that you want to invest. PPF calculator or SIP calculator is a free tool available online which allows the investors to calculate returns before investing their hard-earned money.

Rawat

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