ELSS v/s PPF: Which one to choose?
What's the story
Tax season in India feels like a high-stakes cricket match—everyone's looking for the best strategy to save big!
Enter two crowd favourites: Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF).
Both offer tax-saving perks, but they play in different leagues. ELSS brings high returns with market risk, while PPF delivers slow but steady gains.
So, which one should you bet on?
Understanding strengths and risks can help you hit a financial sixer while keeping your tax bill low.
Safety first
Understanding PPF: A safe haven
The Public Provident Fund (PPF) is a secure investment, backed by the Government of India.
It provides a fixed 7.1% interest rate, tax-free under Section 80C.
Its maturity period is 15 years, but can be extended in five-year blocks.
With assured returns and zero risk, PPF is ideal for conservative investors focusing on long-term savings.
High potential
ELSS: The route to higher returns
ELSS funds are equity-oriented with a three-year lock-in, which is the shortest for Section 80C investments.
They have the potential for higher returns than PPF due to their market exposure, but also come with higher risk.
Good for people who are okay with some risk in hopes of higher returns.
Tax matters
Tax implications: Know before you invest
Both PPF and ELSS contributions qualify for tax deduction under Section 80C up to ₹150,000 per annum.
However, the taxation on returns is where they differ. With PPF, both the interest earned and maturity proceeds are tax-free.
On the other hand, long-term capital gains from ELSS exceeding ₹1 lakh are taxed at 10%.
This difference gives PPF an edge for investors looking for fully tax-free options.
Time frame
Investment horizon: Timing your investments right
The choice between ELSS and PPF depends on your investment horizon.
ELSS, with its three-year lock-in, is ideal for short-term goals or if you don't want your money to be stuck for a long time.
On the other hand, PPF with its 15-year tenure is suitable for long-term planning like retirement. It provides stable returns if you don't need immediate access to your funds.
Decision factors
Flexibility vs stability: Making your choice
Deciding between ELSS and PPF for tax benefits under Section 80C comes down to individual needs and circumstances.
ELSS provides flexibility with shorter lock-in periods and the possibility of significant returns. However, it carries market risks.
PPF offers security with guaranteed returns, complete tax exemption, but requires patience with a 15-year maturity.
Investors should consider these factors, aligning their choice with their risk tolerance, investment horizon, and financial objectives.