ELSS Vs PPF | What is best for tax saving in 2021? | Detailed comparison between ELSS and PPF

 

 

Tax Saving Options.

When the Financial year is coming to end, tax savings comes to our mind. Lots of options available in the market for tax savings. Like, FD, National Pension Scheme (NPS), Public Provident Fund (PPF), Equity Linked Saving Scheme ELSS, Sukanya Samrudhi Yojna, National Savings Certificate (NSC).

What is Section 80C. 

80C is a section in Income Tax Act, 1961. To promote investment, Government allows getting exemption from income tax for the financial year up to 1.5 Lakh Rs. The main intention of the government to generate circulation of liquidity in the market. 

We are going to discuss ELSS and PPF.

ELSS stands for Equity Linked Saving Scheme.

PPF stands for Public Provident Fund.

Both of these Funds provide a maximum deduction of 1.5Lakh Rs under section 80C of the Income Tax Act, 1961.

What is ELSS (Equity Linked Saving Scheme) Fund?

This fund is a part of Mutual Fund Sphere. It mainly consists of investment in equity and equity-related instruments. Its lock-in period is 3 years. It is better for both long-term profit gain and tax deduction. It has fetched returns of 12% approximately in 3 years. Its portfolio is diversified in equity. We can start investing in this tool from 500 rs per month. Because it is linked to equity and equity-related instruments it is riskier than other tax saving options.

What is PPF (Public Provident Fund)?

PPF is a government-backed scheme. Its portfolio consists of debt instruments. Its lock-in period is 15 years. However, you can partially withdraw the amount from the 6th year onwards. Its returns are decided by the government. Currently, it's 7.1% (Changes according to government decision). You can take a loan against PPF. The loan limit will be 25% of the total asset of investment. The interest charges on the loan can be 2% or less. It is backed by the government so it is safe and less volatile. 

Some other attributes to consider.

Tax savings.

Both ELSS and PPF provide tax-saving benefits. Limit is up to 1.5lakh Rs per year. Tax exemption can be taken under 80C in both tools. In ELSS there applies a rule of LTCG. This means if your interest is more than 1lakh you have to pay a tax of 10%

 

Lock-in period.

For ELSS lock-in period is 3 years. For PPF lock-in period is 15 years. But, you can deduct a partial amount from the 6th year onwards.

 

Risk Factor.

ELSS is an equity instrument so it is risky. PPF is a debt instrument and backed by the government it is less risky. But because of the risk-reward ratio ELSS gives higher returns in long run, compared to PPF. In PPF the return is fixed and only government can change it.

The upper limit of investment.

In ELSS there is no upper limit. You can only get an advantage of 1.5lakh rupees for tax saving. In PPF there is a limit of Rs 500 to Rs150000. 

Expected return.

In ELSS the returns are mainly based on the performance of the market. You can get 12% in normal condition and up to 30% in favorable market condition. (it is based on analysis from valueresearch)

Liquidity.

Because of the lock-in period, liquidity will not be available. You cannot redeem your investment before the lock-in period. 

Available at.

ELSS is available at AMC's website and PPF is available from banks and Post offices. Need to complete KYC first. 

 

FAQ

 

What is the full form of ELSS?

Full form of ELSS is Equity Linked Saving Scheme.

What is the full form of PPF?

Full form of PPF is Public Provident Fund

What is the lock-in Period of ElSS?

Lock-in period of ELSS is 3 years

What is the lock-in period of PPF?

Lock-in period of PPF is 15years but you can partially withdraw money from the account after the 6th year onwards.

Which is safe PPF or ELSS?

PPF is a safer option between PPF and ELSS. Because PPF is backed by the government. A portfolio of PPF is created by debt instruments.

ELSS Vs PPF what provides a higher return?

ELSS provides a higher return than PPF. ELSS portfolio is constructed on equity and equity-related instrument. 

ELSS Vs PPF what is volatile?

ELSS is a volatile option because ELSS portfolio is constructed on equity and equity-related instrument.

Best ELSS fund for 2021 | Top 5 ELSS mutual fund

 

1. Mirae Asset Tax Saver
2. Invesco India Tax Plan
3. Axis Long Term Equity
4. Nippon India Tax Saver Fund
5. SBI Long Term Equity Fund
   

Conclusion:

ELSS and PPF both are good options for tax savings. But ELSS has an edge over PPF. For the long-term purpose, you can consider ELSS investment. It will generate a higher return compare to PPF. For the safer side, you can consider PPF for investment and tax-saving purposes. Both are good at their place.

 

 

Disclaimer.

The above recommendation is my personal view. Please consult form your financial advisor before investing.