Which is Better ELSS or PPF?

Savings form an important part of our life. It is important that you not only save but also invest the savings into the right products. It is essential to have knowledge of different products when making an investment decision.

Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF) are two products, which are preferred for an tax saving investment under section 80 C. There are many similarities and differences between the two.

An ELSS is a mutual fund scheme, which invests into different equity schemes over the period. PPF is a government scheme that was introduced to encourage citizens to save. Let us compare ELSS Vs PPF.

Eligibility

In case of an ELSS, any individual can make an investment. Even a Non-Resident Indian (NRI) can make an investment. In case of PPF, only Indian nationals can make an investment.

Lock in period

The lock-in period for ELSS is three years and the same for PPF is 15 years. Loan against PPF is available third year onwards and partial withdrawals can be made from the fifth year.

Investment amount

The minimum amount that can be invested in both the schemes is INR 500; however, there is a difference in the maximum amount that you can invest. In case of PPF, you can only invest up to INR 1.5 lakh in a financial year and in ELSS, there is no limit on the amount of investment.

Returns

In the case of ELSS, the returns are linked to the market movement. Therefore, the returns cannot be pre-determined and will vary according to the volatility in the market. In case of PPF, the returns are predetermined.

Risk

Most investors are concerned about the risk-return balance offered by the investment products. ELSS carries a higher level of risk as compared to PPF since it is linked to the equity market. PPF is a risk-free government investment product.

Tax liability

This is an important aspect to consider if you want to compare ELSS Vs PPF. The investment made in ELSS is exempt from taxation up to INR 1.5 lakh. Even if you invest a higher amount, you will only benefit from a tax deduction of INR 1.5 lakh under section 80 C. The entire amount you receive at the time of maturity is taxed as per the long term tax on Equity Investments. and the dividends you receive from the investment is tax-free. In case of PPF, the entire amount is tax-free and an investment up to INR 1.5 lakh is tax-free in one financial year.

Ideal investors

ELSS is ideal for those investors who can tolerate high risk and are looking to invest for the long term. PPF is suitable for investors who are saving for retirement or for a certain goal and cannot carry any risk. It is more of a forceful investment where you have to invest every year, even if it is a minimum amount.

Both the investment products have their pros and cons. You need to make a decision based on your investment criteria and risk-taking ability.

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