PPF Or ELSS? Which Is A Better Investment Option?

Public Provident Fund (PPF)

PPF is a unique saving scheme aiming at long term savings which has many additional benefits such as tax savings. It is high appealing due to its safe and stable nature because of the fact that it is backed by Government Of India and thus ensuring safety and a determined interest rate at the end of every financial quarter giving stable returns though along with these benefits it also comes with strict and enforcing discipline policies to ensure disciplined savings for long term such as retirement planning.

Equity Linked Savings Scheme (ELSS)

ELSS is a unique scheme which helps investor convert their saving into wealth by investing the money accumulated in a mutual fund into equity admits related instruments moreover it also serves as a great tax saving mutual fund and providing an interest rate of as high as 12% in a 3 year average along wit these benefits there comes the indefinite volatile nature of this mutual fund thus there is a need to a risk to benefit analysis before investing.

What Should I Choose: PPF Or ELSS?

The key differences between a PPF and an ELSS are:

1. Risk Analysis 

The policy of Public provident fund is one of the safer options out there as it has government backing and is channelled through the post office issuing safe and stable funds which may attract the investors who tend to invest in stable and safer options.

ELSS are highly volatile as they invest The accumulated funds in equity and thus making them dependent on market forces thus there is no assurance of safe and stable returns .

2. Returns

The interest rate on PPF funds is determined by the government at the end of every financial quarter with the latest data on the interest rate being as high as 7.9%.

In ELSS the returns earned through the interest are dependent on market movements thus there is no stable pattern available however the 3 year average roughly estimates to 12% of returns.

3. Tax Benefits 

Investments made in Public Provident fund in fact do qualify for tax deductions under section 80C of Income tax return act and the returns are also exempted from tax  whereas in ELSS investments do qualify for tax deductions but returns of gains over 1 lakh Rs come under Long term capital gains and are thus taxed at the rate of 10%.

4. Lock In Period 

PPF investments are designed in a way to promote long term savings  so to that approach policies such as lock in period of 15 years exist in it’s conditions so that the investor cannot sell or withdraw their funds in the short run thus losing sight of their aim whereas ELSS carries no such rigid policy and has a lock in period of mere 3 years.

5. Premature Withdrawal Facility

In PPF funds can partially withdraw their accumulated funds at the end of 5th financial year of policy duration but not completely whereas in no such Clause exists and one can  only make withdrawals after the 3 year lock in period has been completed.

Conclusion

We concur that both the policies are optimal for long term saving and additional benefits such as but the pick of choice really gets down to the above mentioned factors that would help the investor choose by cross referencing their needs against the stance of both policies ion these factors , one needs to determine what kind of return they are looking for and weather they can cope up with volatility of the changes in returns or not answering these question would get the investor the desired pick of choice.

Also read - What Should I Choose - FD Or EPF?

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.