Investment experts typically ask individuals to invest in Equity Linked Savings Scheme (ELSS) to save taxes under Section 80C. The section allows a tax deduction of up to Rs 1.5 lakh on investments in some specified instruments. However, many individual still prefer investing in government-backed Public Provident Fund (PPF) as it offers safety with predictable returns.
“As an advisor, I do not advise my clients to go for PPF except in some cases,” says Abhishek Agarwal, Senior Financial Planner, Horus Financial Consultants. For example, if the investor is a retired person who doesn’t want to take any risk, he would advise the person to go for PPF.
Favourites under Section 80C
For late comers, ELSS or tax saving mutual fund schemes invest mostly in stocks. Many investment experts believe that ordinary investors can use ELSS to step into the stock market. They argue that since these schemes come with a mandatory lock-in period of three years, investors will get used to the volatility associated with investing in stocks. Of course, equity also helps to create wealth over a long period.
PPF, on the other, is part of government-backed small saving scheme that has served generations. An individual with zero risk can open a PPF account with a bank and invest periodically to build a corpus for long-term financial needs. The scheme assures interest, but the rates may change every quarter.
How do they compare?
Well, it is not a fair comparison as part from tax breaks they have very little in common. As you can see, PPF assures returns, whereas returns on ELSS hinges on the performance of the stock market.
As per the new regime introduced in April, interest rates on all small savings will be reset every quarter. The government has linked the rates to comparable government securities. The PPF currently offers 8.1 per cent per annum.
Though not guaranteed, a tax saving mutual fund has the potential to deliver superior returns as it invests most of the corpus in stocks. The ELSS category has returned around 22.50 per cent in the last three years.
Also, ELSS has a mandatory lock-in period of just three years, the shortest among investment options available under Section 80C. PPF, on the other, is a 15-year scheme, though it permits loans and withdrawals after a few years.
“Even though, as an advisor I do not want people to take out their money after three years, it is good to have that option. In case you are in an urgent need or you want to reinvest your money, you should have liquidity,” says Archana Bhingarde, director, HIQ Financial Planners.
According to Archana Bhingarde, individuals with a risk appetite should always invest in ELSS to save taxes under Section 80C. “People who are not willing to take any amount of risk can go for PPF. But, if you want your money to grow better, you should always go for ELSS.”
Abhishek Agarwal asks individuals to split their investments into both PPF and tax saving mutual fund schemes. “If I were to invest, I would invest in both. One gives me great returns and the other will provide capital protection.”
“As an advisor, I do not advise my clients to go for PPF except in some cases,” says Abhishek Agarwal, Senior Financial Planner, Horus Financial Consultants. For example, if the investor is a retired person who doesn’t want to take any risk, he would advise the person to go for PPF.
Favourites under Section 80C
For late comers, ELSS or tax saving mutual fund schemes invest mostly in stocks. Many investment experts believe that ordinary investors can use ELSS to step into the stock market. They argue that since these schemes come with a mandatory lock-in period of three years, investors will get used to the volatility associated with investing in stocks. Of course, equity also helps to create wealth over a long period.
PPF, on the other, is part of government-backed small saving scheme that has served generations. An individual with zero risk can open a PPF account with a bank and invest periodically to build a corpus for long-term financial needs. The scheme assures interest, but the rates may change every quarter.
How do they compare?
Well, it is not a fair comparison as part from tax breaks they have very little in common. As you can see, PPF assures returns, whereas returns on ELSS hinges on the performance of the stock market.
As per the new regime introduced in April, interest rates on all small savings will be reset every quarter. The government has linked the rates to comparable government securities. The PPF currently offers 8.1 per cent per annum.
Though not guaranteed, a tax saving mutual fund has the potential to deliver superior returns as it invests most of the corpus in stocks. The ELSS category has returned around 22.50 per cent in the last three years.
Also, ELSS has a mandatory lock-in period of just three years, the shortest among investment options available under Section 80C. PPF, on the other, is a 15-year scheme, though it permits loans and withdrawals after a few years.
“Even though, as an advisor I do not want people to take out their money after three years, it is good to have that option. In case you are in an urgent need or you want to reinvest your money, you should have liquidity,” says Archana Bhingarde, director, HIQ Financial Planners.
According to Archana Bhingarde, individuals with a risk appetite should always invest in ELSS to save taxes under Section 80C. “People who are not willing to take any amount of risk can go for PPF. But, if you want your money to grow better, you should always go for ELSS.”
Abhishek Agarwal asks individuals to split their investments into both PPF and tax saving mutual fund schemes. “If I were to invest, I would invest in both. One gives me great returns and the other will provide capital protection.”
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