ELSS Vs PPF
5paisa Research Team
Last Updated: 28 Dec, 2023 03:23 PM IST
Want to start your Investment Journey?
Content
- What is ELSS?
- What is PPF?
- Difference Between ELSS Vs PPF
- Things to know about PPF
- Things to know about ELSS
- How to Invest in ELSS And PPF?
- Conclusion
Individuals seeking long-term savings or investments should explore schemes that not only provide substantial returns but also offer tax benefits. In this regard, both the private and public financial sectors provide various plans for investors to consider.
Two notable schemes in this context are the Equity Linked Savings Scheme (ELSS) and the Public Provident Fund (PPF). These schemes not only yield high returns but also come with income tax benefits. They are well-suited for individuals aiming to maximize their savings through wealth appreciation and cultivate a disciplined savings habit.
The following points highlight the difference between ELSS and PPF, aiding individuals in choosing the right product or potentially opting for both.
What is ELSS?
Investors seek opportunities to build wealth, receive consistent returns, and potentially save on taxes. Although there are various investment schemes in the market, many of them come with returns subject to taxation as per Income Tax regulations. This is where ELSS funds come into play. Equity Linked Savings Schemes, or ELSS mutual funds, are tax-saving equity mutual funds.
What is PPF?
Between ELSS Vs PPF, the importance of PPF, or Public Provident Fund, can be precisely described as a long-term investment scheme favoured by individuals seeking steady and elevated returns. Preserving the principal amount securely is the primary objective for those initiating a PPF account. Upon opening a PPF scheme, an account is allocated to the applicant, facilitating monthly deposits and compounding interest.
Difference Between ELSS Vs PPF
Here’s a comparison between ELSS Vs PPF:
Criteria | ELSS | PPF |
Type of Investment | It is an equity-oriented mutual fund scheme | It is a fixed-income investment scheme |
Risk and Returns | It has a higher risk and potential for higher returns | It has lower risk and stable but lower returns |
Lock-in Period | It has a 3 years lock-in-period | It has a 15-year lock-in-period |
Tax Benefits | It offers Section 80C tax deductions up to Rs. 1.5 lakh | It offers Section 80C tax deductions up to Rs. 1.5 lakh |
Mode of Investment | You can invest through SIP (Systematic Investment Plan) or lump sum | You can invest through Lump sum or yearly contributions |
Nature of Returns | It is market-linked and subject to market volatility | It has a fixed interest rate and predictable returns |
Withdrawals and Liquidity | You can redeem units anytime after the lock-in period | Partial withdrawals are allowed after the 7th year |
Interest Rate | No fixed interest rate depends on market performance | Fixed interest rate declared by the government |
Purpose of Investment | Long-term wealth creation and tax savings | Long-term savings with tax benefits |
Things to know about PPF
• Safe Investments: Opting for PPF ensures relief from the uncertainties of investment risks. PPF, being a government-backed scheme, features an interest rate that is determined and paid by the government of India. This government guarantee establishes PPF as a secure investment choice for all Indian citizens.
• Guaranteed Returns: As PPF is a government-backed initiative, the returns on investment are assured, though not unchanging. The government determines the interest rate for PPF every quarter. Historical data indicates a decline in PPF interest rates from 12% to the current 7.1%. Presently, the PPF interest rate is set at 7.1% for the second quarter of the fiscal year 2022-23 (July-September).
• PPF Lock-in Period: PPF is primarily suitable for investors who are inclined to commit their funds for an extended period. The scheme has a maturity period of 15 years, during which only partial withdrawals are permitted after completing five years of consistent contributions. Following the lock-in period (15 years), investors have the option to extend the tenure indefinitely in blocks of 5 years.
• Tax-exemption: PPF falls within the EEE (Exempt-Exempt-Exempt) category of Income Tax implications. This means that contributions of up to Rs. 1.5 lakh in PPF qualify for deductions under Section 80C of the Income Tax Act. Furthermore, the interest earned on the principal amount, along with the maturity amount, is exempt from taxes. This serves as a compelling reason for individuals to consider PPF as a viable investment option.
Things to know about ELSS
• Fund returns: Before selecting a fund, assess its performance by comparing it with its competitors and the benchmark to ascertain whether it has consistently outperformed it in the past. While no fund can always be at the top, high-quality funds typically demonstrate a presence in the top quartiles for prolonged periods.
• Financial parameters: Additionally, you may evaluate a fund's performance by considering various parameters such as standard deviation, Sharpe ratio, alpha, and beta. Funds with higher standard deviation and beta indicate higher risk compared to those with lower values. Opt for funds exhibiting a higher Sharpe ratio.
• SIP or Lumpsum: Before committing to an investment in ELSS, it's crucial to decide on the mode of investment—either through SIP or lumpsum. With the SIP method, you invest a fixed amount at regular intervals, usually monthly. Conversely, the lumpsum method involves investing a substantial sum in a single transaction. Generally, the SIP mode is often regarded as the preferable option because it leverages the benefit of cost averaging. This means you receive more units when the market is down and fewer units when it's up. However, if you have a surplus amount, you may also opt for the lumpsum investment approach.
• Growth & Dividend Options: As an investor, you have the choice between growth and dividend options. With the dividend option, you can receive regular income through dividend payouts for the entire duration of your investment in ELSS. If you opt for the growth option, there are no dividend payouts; instead, the dividends are reinvested in the fund to acquire more units and promote capital growth. Reinvesting dividends enhances the Net Asset Value (NAV) of the units, contributing to increased profits for the investor, particularly during favourable market conditions.
How to Invest in ELSS And PPF?
Between ELSS Vs PPF, ELSS is essentially a mutual fund that qualifies for a deduction under section 80C for the investments made. Various Asset Management Companies (AMCs) provide ELSS schemes. In contrast, PPF is available through banks, allowing you to open a PPF account with the same bank where you hold your savings account.
Conclusion
Though both ELSS Vs PPF schemes offer tax savings, it's crucial to select one based on return expectations, risk tolerance, and investment time horizon. PPF is ideal for individuals who are entirely risk-averse and can commit to a 15-year lock-in period. On the other hand, investors willing to assume moderate risk for potentially higher returns may choose ELSS. The most effective way to minimize risk in ELSS is by maintaining a long-term investment approach.
More About Savings Schemes
- Section 194IC
- PF Form 11
- Form 13 For PF Transfer
- EPF Form 20
- Corporate Fixed Deposit
- Fixed Deposit (FD) vs Recurring Deposit (RD)
- Income Tax on Recurring Deposit RD
- How to Withdraw Money from Unclaimed EPF Account
- How to Get Your Name Changed in the EPF
- Steps to Upload KYC for EPF UAN
- EPF Payment
- Difference between GPF, EPF, and PPF
- Difference Between APR vs APY
- Atal Pension Yojana Tax Benefits
- How To Open Atal Pension Yojana (APY) Account Online
- How to Close Atal Pension Yojana Account
- How to Change Details in Atal Pension Yojana Scheme
- NPS v/s SIP
- NPS Lite Aggregators List
- NPS Customer Care Number
- National Pension Scheme for NRI
- National Pension Scheme (NPS) Withdrawal Rules
- Best Child Investment Plans In India
- Post Office PPF Account
- PPF Account Withdrawal Rules
- PPF Deposit Limit
- PPF Account Age Limit
- PPF Account for Minors
- PPF Online Payment
- ELSS Vs PPF
- Loan Against PPF
- Post Office PPF Interest Rate
- PPF Interest Rates 2023 - 24
- What is Pradhan Mantri Jan Arogya Yojana
- Balika Samridhi Yojana
- What is member ID in PF?
- How To Merge Two UAN Numbers Online
- How to Merge Two PF Accounts?
- How to Raise Grievance in EPFO
- How to Check PF Balance in Mobile: A Comprehensive Guide
- How to Download Your EPF Passbook: A Comprehensive Guide
- TDS on PF Withdrawals: A Comprehensive Guide
- How to Transfer Your PF from One Company to Another?
- EPF vs PPF
- PF Balance Check with UAN Number Without Password
- PF Balance Check without UAN number
- Introduction to Savings Schemes
- Difference Between VPF And PPF
- EPF Form 10D
- NPS vs PPF
- Superannuation Meaning: What is Superannuation
- What is Fixed Deposit?
- Pradhan Mantri Awas Yojana
- Atal Pension Yojna vs NPS
- NPS (National Pension Scheme Charges)
- EPF vs EPS
- EPF Form 2
- What are Tier 1 and Tier 2 in NPS?
- NPS Tier 2
- NPS Tier 1
- Senior Citizen Saving Scheme (SCSS)
- General Provident Fund (GPF)
- Pension Fund Regulatory & Development (PFRDA)
- SBI Annuity Deposit Scheme
- GPF Interest Rates 2023
- Unit Link Insurance Plan (ULIP)
- List of Bank Mergers
- PRAN Card
- Foreign Currency Non Resident Account (FCNR)
- What is EDLI?
- What Is NPS Interest Rates?
- What is Form 15g
- Saksham Yuva Yojana
- Why Invest in PPF?
- How To Check PPF Account Balance
- NSC Interest Rate
- NSC – National Savings Certificate
- Swavalamban Pension Yojana
- KVP Interest Rate
- PF Withdrawal Rules 2022
- NPS Returns
- National Pension Scheme (NPS)
- Jeevan Pramaan Patra - Life Certificate for Pensioners
- Kisan Vikas Patra (KVP)
- PF Form 19
- PF Withdrawal Form
- EPS - Employee Pension Scheme
- PPF Withdrawal
- Atal Pension Yojana (APY)
- EPF Form 5
- EPF Interest Rate
- Check Your PF Balance Online
- Employee Provident Fund (EPF)
- UAN Registration & Activation Online
- UAN Member Portal
- Universal Account Number
- National Savings Scheme
- Post Office Tax Saving Schemes
- Post Office Monthly Income Scheme
- Post Office Savings Schemes
- EPF Claim Status
- EPF Form 31
- EPF Form 10C Read More
Open Free Demat Account
Be a part of 5paisa community - The first listed discount broker of India.