In India, there are several tax-saving instruments available to help individuals meet their financial goals. The two most popular of these are the Public Provident Fund (PPF) and Equity Linked Savings Scheme (ELSS). Each of them has its own unique features which make it attractive for investors. Hence, this blog will feature a comparison between PPF vs ELSS, both of which are some of the best retirement planning options in India.
To understand better how they differ and which one is better for tax savings, let’s take a look at their features, pros and cons, as well as the risk factors associated with each plan.
What is PPF and ELSS?
Let us examine what are the meanings of PPF and ELSS:
Public Provident Fund
- The Public Provident Fund (PPF) is a government-backed investment instrument that helps individuals save money by offering them tax deductions under Section 80C of the Income Tax Act.
- It has a long tenure of up to 15 years and offers an attractive interest rate of 8% per annum. Investing in the PPF is simple and requires very little paperwork, making it a popular choice among investors.
Equity Linked Savings Scheme (ELSS)
- Alternatively, Equity Linked Savings Scheme (ELSS) is an open-ended mutual fund that invests in equity and equity-related securities.
- It has a lock-in period of three years and offers tax deductions under Section 80C of the Income Tax Act.
- ELSS is known to have high returns, making it attractive for investors looking for higher returns on their investments.
Pros and Cons
Even though both of them are excellent options for investments, they may also carry some risks behind them. They are:
Public Provident Fund:
- The primary benefit of investing in PPF is the attractive interest rate of 8% per annum.
- It helps individuals save up money over a long tenure. This makes it an ideal choice for those looking to accumulate large sums of money for retirement and other long-term purposes.
- Additionally, there is very little paperwork involved and the entire process is fairly straightforward.
Equity Linked Savings Scheme:
- On the other hand, ELSS offers higher returns in comparison to PPF due to its equity investments.
- This makes it attractive for investors looking to maximise their returns on investments.
- Additionally, the three-year lock-in period ensures that individuals are committed to the plan. It makes sure people can reap the benefits of compounding over a long period of time.
Tax Benefits and Risk Factors
- Both PPF and ELSS offer tax deductions up to a maximum of Rs 1.5 lakhs per annum under Section 80C of the Income Tax Act.
- This makes them attractive for individuals looking to save on their taxes.
- However, it is important to note that there are certain risk factors associated with both of these plans.
- While PPF is a low-risk investment, ELSS has a higher risk due to its equity investments.
Is ELSS Better than PPF?
When it comes to deciding between PPF vs ELSS for tax savings, it ultimately depends on the individual’s investment goals and objectives.
If an individual is looking for a safe and secure investment with assured returns, PPF may be the better option.
However, if they are looking to maximise their returns on investments over a long period of time, ELSS can be the right choice.
Conclusion: Which is Better?
When it comes to choosing between PPF vs ELSS for tax savings, it is important to consider the individual’s investment goals and objectives.
While PPF offers an attractive interest rate of 8% per annum, ELSS can offer higher returns in comparison due to its equity investments. It is important to note that there are certain risk factors associated with both of these plans, so it is important to understand the risks before making any decisions.
Ultimately, the best choice depends on the individual’s investment objectives, risk appetite and other financial goals.