ELSS Or PPF - where to invest for Tax Saving

The most popular tax-saving options available to individuals and HUFs in India are under Section 80C of the Income Tax Act,Section 80C includes various investments and expenses you can claim deductions on – up to the limit of Rs. 1.5 lakh in a financial year. ELSS schemes of mutual fund and PPF are the two most sought investments options for tax saving.

Below are the differences between ELSS and PPF:

 Risk – Public Provident Fund PPF investment is low risk because it is backed by the Government of India.ELSS funds, on the other hand, 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 rate of interest on PPF investment is decided by the Government of India with the present rate being 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 and are, therefore, taxed at the rate of 10%.

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. ELSS funds are invested in equity and are subject to market fluctuations and volatility.

Offered Through – PPF is offered through banks and the post office. 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. ELSS is managed by a fund manager and offered by the mutual fund house. 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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