ELSS Or PPF – where to invest for Tax Saving

Below are the differences between ELSS and PPF:

♟️ Risk

Public Provident Fund PPF investment is low risk as the Government of India backs it. On the other hand, ELSS funds invest in equity and equity-related instruments and are exposed to market risks, which makes them a better investment option for those who are willing to risk volatility for the sake of long term gains. 

♟️ Returns

The Government of India decides the rate of interest on PPF investment. At present the rate is 7.1%. The returns on ELSS depend on market movements. The 3-year annualized historical returns on ELSS funds are 12% and above.

♟️Tax on Returns

PPF investments carry a tax benefit of the returns being totally tax-free. In ELSS, gains of over INR 1 Lakh are considered long term capital gains. Tax @10% is levied on the gains.

♟️ Lock-in Period

PPF investment has a lock-in period of 15 years, with an option to make a partial withdrawal after the completion of 5 years. Equity linked saving schemes ELSS, carries a lock-in period of only 3 years. But you can keep the investment for a longer duration as well.

♟️ Volatility

The funds collected in PPF are used by the Government where you can earn a fixed interest. Hence, there is no question of volatility.

The investment of ELSS funds consists of Equity and hence, they are subject to market fluctuations and volatility.

♟️ Offered Through

Banks and the post office offer PPF. To invest, you would need to open a PPF account, followed by a KYC process. Plus you can even open a joint PPF account for and with a minor. Mutual fund houses offer ELSS and appoint a fund manager to manage them. Hence, you can invest directly through the AMC website, Mutual Fund Distributor or through Demat agents and registrars.

♟️ Contribution

In both investment options, PPF and ELSS the contribution can be monthly or in a lump sum. In PPF, the minimum investment amount is INR 500. On the other hand, the maximum is INR. 1.5 Lakhs for every financial year. In ELSS, you can start investing with INR 500 (SIP) and there is no upper limit of investment.

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