With accounts department and HRs sending the “submit your tax investment proofs” email, hundreds of taxpayers are frantically searching for the best possible way to save tax, whatever way they can.

As both ELSS (Equity-Linked Savings Scheme) and PPF (Public Provident Fund) are tax-saving investments, there is always an element of confusion in picking the apt scheme for one’s portfolio. This article aims to offer a comparative analysis of the two tax-saving schemes to aid investors in selecting the right one for them.

What is anEquity-Linked Savings Scheme?

ELSS is an equity mutual fund investment scheme that invests at least 80% of their corpus in equity and equity-related securities. Investments in ELSS funds qualify for tax deductions under Section 80C of the IT Act, 1961for up to Rs1.5 lakh. The sum you invest in ELSS is subtracted from your taxable income, that helps you lower the income tax amount you are liable to pay. ELSS mutual funds have a lock-in period of three years.Returns earned on ELSS fund – dividends and capital gains are entirely tax-free.

What is a Public Provident Fund?

 PPF is a government-backed savings scheme that offers a fixed and predetermined rate of interest in the investment amount. These rates are revised and paid by the Government every quarter. It is one of the most popular traditional long-term investment options due to its combination of safety, returns,  and tax-saving qualities to its investors. PPF schemes have a maturity period of 15 years. The amount deposited in a year can be claimed u/s 80C deductions of up to Rs1.5 lakh.


 Investors always face a question ELSS vs PPF, which is better tax saving option? Here is a comparison between the two tax saving options.

Risk As PPF is an initiative by the Government of India, these investments are relatively safe. As ELSS funds are equity funds, the investments are subject to market risks.
Returns The Government of  Indiadeclares the rate of interest for PPF investments each year. It is usually between 7% to 8% p.a. The returns on ELSS schemes vary depending on the scheme chosen. But an investor can expect 12%-15% returns on an average. 
Tax benefits These schemes enjoy EEE benefits (Exempt Exempt Exempt) – The invested amount is exempt from taxes at the time of investment, accumulation, and redemption. There is a 10% LTCG tax applicable on ELSS investments for returns above Rs1 lakh.
Lock-in period PPF investments have a lock-in tenure of 15 years. (After the 5th year partial withdrawals are allowed) ELSS investments have a lock-in tenure of 3 years. Also, there is no possibility of premature withdrawal.
Investment horizon You cannot invest in PPF schemes for more than 15 years. However, you can extend to 5 more years.  ELSS investments have no upper limit.

Whether you should go for ELSS funds or PPF schemes depend on your investment portfolio. Your investments should align with your financial goals, investment horizon, and risk profile. So, if you are a risk-averse investor, you should consider PPF schemes. However, if you are ready to ride out the volatilities of the stock market, consider investing in ELSS funds, as they offer relatively higher returns. Happy investing!


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