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Is ELSS Better Or PPF?

Updated On Nov 17, 2021

The performance of an ELSS is market-linked, and a considerable amount of the money invested flows into equity investments. As a result, market volatility affects the results. In the long term, it has proven fruitful. The best ELSS funds have outperformed traditional securities like PPF and FD by a significant margin. It does, however, provide more opportunities for long-term wealth creation, and it is preferred by those who are more risk-averse.

PPF, or Public Provident Fund, is a savings plan that allows people to set aside a portion of their earnings each year in order to construct a retirement fund. An individual's contribution to the PPF plan entitles them to interest on the principal amount as well as tax benefits.

Different investing objectives drive both of these plans. Refer to the following article for further information on the issue.

  • On The Basis of Returns

PPF interest rates do not remain fixed for the duration of the investment. Every quarter, the Finance Ministry examines the interest rates on PPFs and other small savings plans. Interest rates are mostly determined by the yields on government bonds.

ELSS schemes, on the other hand, are reliant on the performance of their portfolio members to generate returns. ELSS funds, on the other hand, outperform fixed income instruments in the long run due to their equity-oriented nature. Over the last three, five, and ten years, ELSS as a category achieved annualised average returns of roughly 9%, 16 percent, and 13% p.a.

  • Lock- In Period

The PPF has a 15-year lock-in term and allows for partial withdrawal and premature closure. Partial withdrawals are only permitted once a year beginning in the seventh year of subscription.

The lock-in period for equity-linked savings plans (ELSS) is only three years. However, the investment can be held for a longer period of time.

  • Based On Risk Appetite of The Policyholder

PPF is one of the most secure ways to save money on taxes. PPF comes with a sovereign-backed guarantee for both the principal and interest components because it is managed by the Government of India.

ELSS funds are subject to the inherent volatility of equity markets because they invest primarily in shares. However, by investing in ELSS through the SIP option, this risk can be avoided. SIPs ensure that regular investments are made at regular periods, allowing for cost averaging during market corrections and removing the need for market timing.

  • Based On Tax Returns

The returns on PPF investments are tax-free.

However, because ELSS have stronger long-term upside potential, quality ELSS funds' post-tax returns will continue to surpass tax-free PPF returns by a large margin.

  • Investment Period

The maximum investment duration in an ELSS has no upper limit. You have the option of investing for as long as you like.

PPF, on the other hand, allows you to invest for up to 20 years.

Conclusion

On numerous factors, we compared and contrasted ELSS and PPF in this article. PPF and ELSS are both tax-advantaged investments. Although ELSS investments are exposed to market risks, they have a higher potential for wealth generation and more liquidity than PPFs. After evaluating all of the aforementioned considerations, the investor must make the final decision.

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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.

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