The Equity Linked Savings Scheme (ELSS) and the Public Provident Fund (PPF) are popular investment options, and both offer tax benefits under Section 80C of the Income Tax Act. However, when it comes to tax exemptions, many people get confused over where to invest their money- PPF or ELSS. To ease your confusion, here is an article that talks about the key features of both PPF and ELSS.
What is PPF?
The Public Provident Fund is a long-term investment scheme backed by the Govt. of India. PPF offers an attractive rate of interest and safe returns that are completely exempted from being taxed. The minimum amount that you can invest in a financial year is Rs.500, while the maximum amount is Rs.1,50,000. The investor can avail of loan facilities, extension and withdrawal of account.
What is ELSS fund?
Equity Linked Savings Scheme, on the other hand, is a fairly new financial product that has been in operation for the past 15 years. This is a type of equity mutual fund, which means you can avail tax deductions. They mainly invest in stocks with the aim of acquiring high returns. Unlike PPF, ELSS is a risky investment option, since the dynamics of the stock market keep changing.
PPF vs. ELSS- Which should you go for?
Before you make a choice, these are the different parameters of PPF and ELSS, which you should be aware of-
- Returns
- PPF- The returns are fixed. Currently, the return rate as notified by the Govt. of India is 7.8%.
- ELSS- The returns are not fixed. The rates fluctuate every year, depending on the dynamics of the stock market. Usually, it ranges from 20-50%.
- Lock-in period
- PPF- The lock-in period for PPF is 15 years. The investor can withdraw a certain amount of money (partial withdrawal) after 7 years. Once the initial lock-in period is over, you can extend your PPF by another 5 years.
- ELSS- The lock-in period for ELSS is 3 years, after which you can withdraw the money.
- Risk
- PPF- The risk associated with PPF is very low since the Govt. of India runs the scheme. PPF is best suited for traditional, stable investors looking to achieve long-term financial goals.
- ELSS- ELSS is riskier than PPF because the returns are linked to the market. If you are a moderate risk taker, you can invest in ELSS. ELSS has moderate risk attached to it, unlike sector funds, which carry high risk.
- Taxation
- PPF- The returns you get from PPF are 100% tax-free.
- ELSS- Long-term capital gains from ELSS funds above Rs.1 Lakh are taxable at 10%.
Now that you know what is ELSS fund and PPF, decide carefully where you want to put your money. Comparing the above parameters of the two investment options can benefit you in the long run. If you are investing in PPF, you will need to open a PPF account at the bank or the post office. Alternatively, ELSS requires you to invest in any recognized fund house that offers a mutual fund investment option.
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