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ELSS Vs PPF: Which Is Better For Tax Saving?

2 min read

Equity-Linked Savings Schemes (ELSS) and Public Provident Fund (PPF) are two popular investment options in India for tax saving under Section 80C of the Income Tax Act. Both offer unique benefits, making the choice between them a critical financial decision.

Understanding the differences between ELSS and PPF is crucial for investors seeking to maximize tax savings while achieving their financial goals. This comparison helps in aligning investment choices with risk tolerance and return expectations.

What is ELSS?

ELSS, or Equity-Linked Savings Scheme, is a diversified equity mutual fund. It primarily invests in the stock market, offering the potential for higher returns. ELSS comes with a lock-in period of three years, the shortest among tax-saving investments.

Advantages of ELSS

  • Higher Returns: Historically, ELSS has provided higher returns compared to traditional tax-saving instruments.
  • Shorter Lock-in Period: With only a three-year lock-in, ELSS offers more liquidity.
  • Tax Benefits: Investments up to ₹1.5 lakh are eligible for tax deductions under Section 80C.

What is PPF?

The Public Provident Fund (PPF) is a government-backed savings scheme. It offers a fixed interest rate, making it a low-risk investment option. PPF has a lock-in period of 15 years, with partial withdrawals allowed after the sixth year.

Advantages of PPF

  • Guaranteed Returns: PPF offers a fixed interest rate, ensuring steady returns.
  • Tax-Free Interest: The interest earned is tax-free, enhancing the overall returns.
  • Safety: Being government-backed, PPF is a safe investment choice.

Comparing ELSS and PPF

Feature ELSS PPF
Lock-in Period 3 years 15 years
Risk Level High (market-linked) Low (government-backed)
Returns Market-dependent Fixed (currently around 7.1%)
Tax Benefits Up to ₹1.5 lakh under 80C Up to ₹1.5 lakh under 80C

ELSS Investment Platforms

  • Groww: A user-friendly platform for investing in ELSS with no account opening charges. Visit Groww
  • ETMONEY: Offers a seamless ELSS investment experience with zero commission. Visit ETMONEY

PPF Account Opening

  • State Bank of India (SBI): Offers PPF accounts with easy online access. Minimum deposit is ₹500. Visit SBI
  • Post Office: Provides PPF accounts with nationwide accessibility. Minimum deposit is ₹500. Visit India Post

In conclusion, choosing between ELSS and PPF depends on individual financial goals, risk appetite, and investment horizon. ELSS suits those seeking higher returns and shorter lock-in, while PPF is ideal for risk-averse investors. Explore these options to enhance your tax-saving strategy.