Public Provident Fund (PPF) is a savings scheme established by Central Government of India. It is considered as safe investment option as the invested amount and interest are backed up by government.
Equity Linked Saving Schemes(ELSS) is a type of mutual funds, which is a tax deductible scheme under mutual funds. As ELSS assets invest in Equities, the returns are subject to market volatility.
Below are the comparison details between PPF and ELSS.
|Investment limits||Minimum – 500|
Maximum – 1,50,000
|Minimum – Based on Fund|
Maximum – No upper limit however tax exempted only upto 1,50,000
|Lock-in Period||15 years||3 years|
|Investment Period||15 years, but you can extend 5 more years, if you wish||No upper time limits|
|Tax benefits||Investment – upto 1.5 lakhs per financial year|
Returns – Fully tax exempted
|Investment – upto 1.5 lakhs per financial year|
Returns – Gains upto 1 lakh tax
Flat 10% tax on gains above 1 lakh
|Risk||Low, since Govt has backed||High, as it invests in Equities|
|Returns||Moderate, as Govt declares ROI every quarter||High, as it invests in Equities|
|Withdrawals||Partial withdrawals allowed after 5 years||Allowed any time after lock-in i.e, 3 years; But no premature withdrawals allowed before 3 yrs|
Hope the above table has given some clarity on Pros & Cons of both PPF and ELSS funds.
Now coming to the most important point of which one is better – it depends on factors like your Risk taking appetite, Investment horizon and your Investment amount. If your investment period is short term or you may be required to withdraw the amount in between, then PPF provides this option after 5 years, however you cannot partially withdraw from ELSS funds until 3 years. Coming to the returns part, PPF will give steady returns as it is backed up by Central Government, however most of the ELSS assets will be invested in Equities and hence ELSS will give relatively higher returns (over long term) compared to PPF and Fixed Deposits.
I would like to end this article with some thought. Let us consider the performance of PPF, ELSS & Index funds over last 20 years (1999 to 2018). Assuming that invested amount is 1,50,000 per year in every fund which accumulates to 30,00,000. You will be surprised to know the facts on the returns. PPF returns came to 77.8 lakhs, Index funds gave 1.5 crores and ELSS returns came to 1.8 crore (factored average performance only). Though the post tax returns of both ELSS & Index funds would slightly comes down from above numbers, they are definitely higher than the PPF returns for sure.
So considering all the aspects, please take a good decision and invest wisely !!