Investing with proper knowledge in the proper place is very important. ELSS and PPF are two such policies giving high returns that will help you in your financial growth. Choosing between ELSS Vs PPF can be confusing. We have chalked out a detailed difference between them so that you can make an informed decision regarding your financial goals.
ELSS is a bit risky but has high amounts of returns also whereas PPF has a low-risk factor and gives low returns compared to ELSS. You can select any of the savings schemes depending on your risk factor; you can also diversify your investments and invest in both to lower the risk factor in your investment portfolio. So, lets read about which is better among these.
PPF And ELSS:- Which Is Better
In this article
Under this section, we will compare specific points of ELSS and PFF and then finally determine which the better scheme among the two.
1. Lock-In Period
ELSS:-ELSS comes with a lock-in period of 3 years. Upon discretion of the depositor, one can keep the money even for a longer duration
PPF:-PPF, on the other hand, has a lock-in period of about 15 years. You can withdraw partially after 5 years term. But if you want to withdraw your money completely, you may have to pay the penalty.
In this regard, ELSS gains an extra point due to its flexible structure.
2. Return On Investment(ROI)
Return on investment refers to the percentage of returns you can get on one’s investment. ELSS and PPF both are high return, popular, flexible schemes. ELSS ROI rates depend on market conditions, fluctuating continuously. On the other hand, PPF is a government-backed scheme; the interest rates are changed each year.
ELSS:-ELSS has been known to give very high returns often, the schemes give double-digit returns. Though it depends on the market conditions, calculating past returns, it provides about 12% per annum ROI.
PPF:-PPF is backed on the government of India at comparatively low risk. It gives high returns of about 7.1% to 8.5%, which changes every year.
ELSS dominates in this regard also, where on average, it gives a high return on an average.
3. Maximum Investment
By maximum investment, we refer to the lump sum amount a person can invest
ELSS:-You can invest any sum of money in ELSS, where you can deduct 1.5 lakhs under section 80c
PPF:-You can invest a maximum of 1.5 lakhs each year in PPF. This complete amount can be exempted from taxation
PPF strains us on the amount we can invest in the scheme, whereas ELSS does not have any constrictions.
4. Minimum Investment
Both ELSS and PPF has the same minimum investments, so no one is ahead in this regard.
ELSS:- You can start investing in ELSS from Rs500. These funds can be either a lump sum amount or in SIP.
PPF:-In PPF also you can start investing from Rs500.
Each person has its risk appetite, which means the capability to take over. Lower it is lower are your chances to take risk and vice versa.
ELSS:-it completely depends on the market conditions, so it is quite risky to invest in ELSS as you may even have losses on your investment.
PPF:-On the flip side, PPF is backed by the Government Of India. Hence it is less risky to invest in PPF. People wanting to keep their money safe and gain a steady return should probably invest in PPF.
People with low risk-taking capacity should invest in PPF, whereas aggressive investors should like to invest in ELSS. However, PPF gives out high returns at low risk, so it has an advantage in this regard.
6. Time Horizon
Time horizon refers to the tenure for which you can keep your money in the saving schemes.
ELSS:-ELSS does not have any maximum tenure; you can invest for as long as you wish.
PPF:-maximum tenure of PPF investments can be 15 years; however, after maturity, the tenure can be extended for more 5 years.
ELSS gains an extra point in this regard.
Several schemes ask you to pay extra fees in case you want to withdraw your money before maturity.
ELSS:-ELSS has a huge advantage where you can invest your money any time you wish to and withdraw after the completion of 3 years. If at a certain point, your equity is at a very high level, you can instantly sell your money to gain higher profits.
PPF:-it has a lock-in period of 15 years; after 5 years you have an option to withdraw your money partially.
ELSS is well ahead in this point as it has the flexibility to invest and withdraw at any certain time.
Volatility refers to the change in the price of ROI over a while.
ELSS:-ELSS schemes invest in equity; equity fluctuated with the change in market condition, thereby increasing the volatility of the funds overall.
PPF: the Government Of India backs the funds collected in PPF and they offer a fixed rate of interest. hence, PPF is very less volatile.
PPF is not very volatile and hence gain an extra point in this regard
9. Offered Through
It is the option through which any person can avail PPF and ELSS savings schemes.
ELSS:-ELSS funds are offered by mutual funds, you can invest directly through the mutual fund’s website, any online investment portal, or Demat agents.
PPF:- PPF is offered through any banks or post office. You need to first create your PPF account, complete your KYC and then deposit your money. You can also make a joint account for a minor(children below the age of 18).
ELSS offers you multiple options to start investing, hence a better option.
10. Tax Benefits
Tax benefit refers to a reduction in the total taxable amount, which in turn decreases the total taxes you need to pay
ELSS:-Offers tax savings under section 80c up to 1.5 lakhs, earnings you make are taxable according to the current slab rates
PPF:-The maximum amount you can invest is 1.5 lakhs which can be completely reduced under section 80c. The earnings you make are not taxable.
The complete amount invests in PPF is exempted from taxes, hence gain an advantage in this regard.
11. Loans Facility
Both the savings scheme offer loans against their investments
ELSS:-You can avail loans against ELSS, there is a similar process to the bank where you need to be present with documents.
PPF:-PPF also provides you with loans against the saving schemes. You can take up to 25% of the total invested amount.
ELSS provides you with a comparatively higher loan on the same amount, so it gains greater advantage.
12. Who Can Invest?
ELSS:- Any of Indian Citizen, NRI, and HUf’s can avail this scheme.
PPF:- Everyone can have PPF except NRI’s and HUF’s are eligible to purchase the scheme.
Differences Between ELSS and PPF
The difference between ELSS and PPF are:
Can You Invest In Both ELSS and PPF?
Yes surely, you can invest in both the schemes. Choosing to invest in both is quite a clever option because it reduces the overall risk associated with the investments. Equity Linked Saving Scheme is a risky investment whereas the Provident Fund is a government-backed low-risk investment. Hence it gives out stabilized returns at maturity.
So Which Is Better Overall?
We looked at the various aspects of the two schemes. In some of the parts, Public Provident Fund seemed to dominate whereas Equity Linked Saving Scheme had an advantage on the rest of them.
Provident Fund can be considered as a low-risk stable investment. When your primary goal is to keep your money secure, then it brings you a great choice as apart from keeping money safe, it also has good returns.
Many people think that Equity Linked scheme has an upper hand on Provident Fund because not only it gives very good returns in a long term. It can be invested at any point of time, withdrawal can be done after 3 years, loans can be taken, it is very flexible and is just a few clicks away from investing.
General Info About Equity Linked Savings Scheme
Equity Linked Savings Scheme are equity funds that invest a major portion of the investments in shares of the company. Depending on the market conditions it can give large profits.
You can also get a tax exemption of up to 1,50,000Rs under section 80c by investing in this scheme. It has a lock-in period of 3 years, during which you cannot withdraw your money. The earning you make your investments are taxed based on long term or short capital gain.
Lump-sum Or SIP
ELSS gives you two options for investing. Either you can invest the complete amount at a single instant or you can pay small amounts at regular intervals.
Investing lump sum amounts to save taxes is not very beneficial. It is quite risky to invest especially when market capitalization is quite high. Investing in SIP help you gain an average profit and also reduce the cost per unit of deposits.
Features Of Equity Linked Savings Scheme
- More than 80% of the total investment is done in equity and equity-related funds.
- There is diversification of investment in equity depending on different market capitalization, themes and sectors.
- There is no maximum tenure period for investments, however, it has a lock-in period of 3 years.
- Tax exemption can be made under section 80c up to 1.5 lakhs.
- Income earned are said as LTGC and is taxed according to the same.
- The minimum amount you can invest in ELSS is Rs500.
- You have the option to either invest in SIP or lump sum.
Companies With High ROI in 2019
- Nippon India assets management company
- ICICI bank ltd
- HDFC asset management company
- Adani green energy ltd
- APL Apollo Tubed ltd
Tax Benefits Of Equity Linked Savings Scheme
Investing in Equity Linked Savings Scheme is more profitable as it also provides with a lot of tax benefits. Under Section 80c of the income tax act, the beneficiary can have a deduction of upto 1.5 lakhs in the total taxable amount.
It has a lock-in period of 3 years, so on maturity the earnings you receive come under low term capital gains(LTGC). Earnings up to 1 lakhs are not taxable at all, however, on earning more than 1 lakhs is taxed by 10% without indexation.
General Information About Public Provident Fund
Another investment scheme we are discussing is Public Provident Funds. Due to its multiple crowd-friendly features and easy accessibility, it has gained a lot of popularity in the market.
It has a low risk and gives stable returns. If the safe-keeping of your money is the prime goal you want to secure then PPF is best for you. It is usually a long term investment giving stable and high returns.
Features Of Public Provident Funds
- Provident Fund comes with a lock-in period of 15 years. During this period the depositor cannot withdraw complete funds. After maturity, the period of the policy can be extended for more 5 years.
- The minimum investments that can be made are 500 and the maximum is 1.5lakhs. In these funds, the investor can either do a lump sum payments or in SIP. The SIP investments can be narrowed only up to monthly payments.
- One can also get loans against their deposits in PPF. The loan can be only availed from the start of 3rd year to the end of the 6th year from the starting date. Loan tenure can be a maximum of 36 months and only a total claim of 25% can be made on the investments.
Tax Benefits Of Public Provident Funds
Similar to Equity scheme, PPF also has tax exemptions under section 80c. The total amount that can be invested in one financial year is 1.5lakhs and the same is the tax deductions that can be made in Provident Funds.
Your earnings on the Provident Funds are exempted from any tax. So, we can say that it is completely tax-free. What you deposit and whatever you earn is not applicable for taxation so even after maturity is the complete amount is not taxable.
Frequently Asked Questions(FAQs)
1. What Is ELSS?
2. What is the minimum investment in ELSS and PPF?
3. What is the highest ROI on ELSS and PPF?
4. Where can we invest ELSS from?
5. Where can we invest PPF from?
6. Can we get a loan against the ELSS and PPF savings scheme?
7. What is the lock-in period of ELSS and PPF?
8. When can I withdraw my money from PPF and ELSS?
9. Which of the ELSS and PPF gives higher tax savings?
10. Which is better ELSS or PPF?
Both the schemes give you tax benefits, you should first look at all the terms and conditions of the scheme then choose on suiting your risk appetite, investment goals, returns, and investment time period.
Provident Fund suits people with a low-risk appetite, wanting a secure, safe, and steady returns and while keeping their money safe. However, Equity Scheme is for the aggressive investor wanting greater returns in a small span.