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NEW DELHI: When it comes to investing, it shouldn't just be done to reduce taxes. 1.5 lakh rupees is a sizable investment sum, therefore you should exercise extreme caution when deciding where to put your hard-earned money.
Saving money for the future is a great idea with Public Provident Funds (PPF) and Equity-Linked Savings Schemes (ELSS). Depending on the investor's tolerance for risk will determine which is preferable. Let's examine the key parallels and divergences between the two investment strategies.
PPF is a fixed-income investment programme that is supported by the Indian government. Both the amount withdrawn at maturity and the interest income produced are tax-exempt. A PPF account can hold investments for up to 15 years. The PPF's limited returns are, however, one of its main disadvantages as an investment choice. Real returns on PPF investments will be just 2-3% if inflation is assumed to be 6%. Even over the long run, it will be challenging to build adequate corpus through PPF due to the poor returns.
The risk-oriented equity-linked savings plan would now be able to produce more wealth over a longer period of time. The majority of individuals have doubts about investing in the stock market. However, the risk will be lower and the rate of return will also rise if you invest in ELSS with a long-term time horizon in mind. The ELSS funds provide both better returns and income that is tax-free. Investments up to Rs 1.5 lakh are tax-free under section 80C of the Income Tax Act.
Additionally, the ELSSS have the shortest lock-in term of 3 years among the different tax-free investment choices available. In an emergency, you might decide to remove the money. Additionally, a Systematic Investment Plan can be used to invest in ELSSS. Starting out, you can invest as little as Rs. 500 per month. A lump sum investment can also be made all at once.
Before investing their money, investors are advised to carefully weigh the advantages and disadvantages of each investment option.
Which is better; ELSS or PPF?
Both ELSS and PPF are excellent tax-saving options, but they serve quite different ends. PPF avoids volatility and risk at the expense of returns. Due to its returns that outpace inflation, an ELSS is better for long-term investments.
Which is riskier, ELSS or PPF?
ELSS funds carry additional risk since your investments in stock and products that are tied to equities are vulnerable to market risks. But because of this, ELSS is a superior option for long-term investing. PPF, on the other hand, is backed by the federal government, which makes it a great investment choice for those who are wary of taking on a lot of risk.
Out of ELSS or PPF, which yields better returns?
ELSS invariably provides a high return for long-term investors since its return is based on market changes. For instance, the 3-year annualised returns on ELSS are at least 12%, PDF, and as they are backed by the Indian government, the return interest rate is quite constant. Currently, the interest rate is 79%. Additionally, PPF returns are tax-free.
What is the lock-in period for ELSS and PPF?
If you choose to use PPF, the lock-in period is 15 years with the option of partial withdrawal after five years have passed. The lock-in period for ELSS is three years.
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