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Comparing ELSS Funds with Public Provident Fund

24 Jul 2023

In the times we live in, there is a need for emergency funding. Individuals are constantly seeking ways to save money so it yields good returns with minimal tax. ELSS or Equity-linked Savings Scheme, and PPF or Public Provident Fund, are both saving schemes that help you save and give you a tax benefit. Although these similarities exist, they are different. An ELSS vs PPF comparison is necessary to choose the best saving plan for you, and you should know what each entails. 

  • What is Public Provident Fund?

A savings scheme, backed by the Government of India, is Public Provident Fund (PPF). This scheme provides guaranteed returns and a tax benefit under Section 80C of the Income Tax Act. Interest rates are stipulated by the government. If you have a PPF account, there is a minimum amount which has to be deposited every financial year, and a maximum amount beyond which you cannot deposit. For the FY 2023–2024, the minimum and maximum amounts are respectively 500 and 1.5 lakh rupees. If you're unsure of how much to invest in PPF, you can use a PPF calculator to determine the growth rate of your investment over time given a particular rate of interest and initial investment. This might assist you in calculating the amount you need to invest in PPF in order to meet your financial objectives.

  • What is ELSS Mutual Fund?

An ELSS or Equity Linked Savings Scheme is a kind of mutual fund held by individuals who get a tax benefit under Section 80C of the Income Tax Act. ELSS has gained immense popularity in recent times as it offers high returns, plus low lock-in periods. You can know about how to invest in mutual funds online at Motilal Oswal, the one-stop place for all your finance needs.

  • The Difference Between ELSS and PPF

When you are aware of the difference between ELSS and PPF, you can make informed decisions about which is a good saving tool for you. Here is a comparison, in terms of features/variables: 

Risk - PPF returns are guaranteed as the scheme is assured by the government. On the other hand, ELSS returns are not guaranteed as they depend on Equity Markets

Tax Benefit - PPF investments come under the Triple E tax exemption category. A depositor can deposit a maximum of Rs. 1,50,ooo per year without any tax deduction. Moreover, interest accumulated is also exempt from tax and so is the maturity amount once the PPF ends. In the case of ELSS, if the returns exceed Rs. 1 lakh per year, these are taxed at 10%. 

Lock-in Period - In the tax-saving category of ELSS, the lock-in period is only 3 years, while in PPF it is 15 years. With a short lock-in, ELSS offers more liquidity than PPF. 

Returns - In PPF, you get fixed returns at an average of around 7% annually. ELSS offers you higher returns, but these are market-dependent. 

Concluding Remarks

You can easily invest in ELSS online at financial sites like Motilal Oswal. You can start investing with amounts as low as Rs. 500 with the SIP option in ELSS. Both investment schemes are good as they offer tax benefits. If you can risk small amounts on a monthly basis, ELSS may be a good choice. 

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