Although both the Equity Linked Savings Scheme (ELSS) and the Public Provident Fund (PPF) are tax-advantaged savings schemes, investors often struggle to choose which investment instrument suits them the best between the two.
Equity Linked Savings Scheme
ELSS, which stands for Equity Linked Savings Scheme, is a type of mutual fund that qualifies for tax benefits under Section 80C of the Income Tax Act, 1961. The ELSS has gained popularity in recent years as a result of its better yields and the shortest lock-in time among tax-saving investments.
Some benefits of ELSS are as follows:
Shortest Lock-in period
Highest return amongst other tax saving instruments
Public Provident Fund
The Public Provident Fund (PPF) is a government-sponsored savings scheme that guarantees returns and gives additional tax benefits under the section 80C of the Income Tax Act, 1961. The government sets the interest rate on PPF every quarter. Interest rates have been set at 7.1 percent for the current quarter Q1 (April-June) FY-22-23.
Some benefits of PPF are as follows:
Investments can start from Rs 500.
Lovaii Navlakhi, Chairman of the Association of Registered Investment Advisors (ARIA) told Business Today the differences between both the schemes all investors need to know, “While both ELSS and PPF investments get Sec 80C benefits to the extent of Rs 1,50,000 per year, they have dissimilarities which one should be aware of. Navlakhi emphasisis that the tenure of both the schemes is different. He said, “For one, the fixed tenure of ELSS is three years, whereas PPF account has to be invested for 15 years. Hence, investors need to determine the time horizon for which they wish to invest first.”
Moreover, he further explained the kind of investments which ae made in both instruments. He said, “Secondly, ELSS is invested fully in equity; PPF is entirely in debt.
Explaining about the return on investment, he said, “Obviously, return expectations are different – equity is likely to give higher returns, though tax through capital gains will apply in the case of ELSS. Here’s where PPF pays off, as the returns on this investment are tax free.”
He concluded by saying, “Determining the end goal for the investment of funds is an important factor before choosing either of these choices for the investor.”
Also read: NPS vs PPF- Where to invest next?
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