Equity Linked Savings Scheme and Public Provident Fund are savings schemes for tax benefits. As an investor, you can invest in either of the schemes or both.
Equity Linked Savings Scheme is a type of mutual fund investment scheme which is eligible for tax benefits under Section 80C of the Income Tax Act, 1961. ELSS offers dual benefits of tax-saving and market linked wealth creation in the long run. It comes with a lock-in period of 3 years. Investors with a higher risk tolerance often select ELSS over PPF. Being a mutual fund, a significant portion of the fund goes into equities. Equities are subject to market risk and volatility. Also, some of the best ELSS funds have delivered better returns in the past in comparison to PPF and FD.
| Category | PPF (Public Provident Fund) | ELSS (Equity-Linked Savings Scheme) |
|---|---|---|
| Risk | Backed by the Government of India, PPF investments are safe | ELSS is an equity mutual fund which are subject to market risks |
| Returns | The interest rate of return is declared by the government of India every year. It is currently between 7% and 8% p.a. | ELSS is a market-linked instrument. The returns depend on the scheme selected and vary between 12%-14% approximately |
| Tax Benefits? | EEE (Exempt Exempt Exempt) PPF is exempt from taxes at the time of investment, accumulation, and withdrawal | ELSS is subject to 10% LTCG tax if the returns are over and above Rs. 1 lakh after a period of 1 year |
| Lock-in Period | 15 years. (Post the 5th year partial withdrawals are permitted) | ELSS investments have a lock-in period of 3 years. There is no possibility of premature withdrawal |
| Investment Duration | You can invest for more than 15 years. However, you cannot extend the investment to more than 5 years | ELSS investments have no upper time limits |
| Investment Amount | You can invest between Rs. 500 and Rs. 1,50,000 in a financial year in a lump sum or in 12 installments | No such limit on maximum amount. Under Section 80C of the Income Tax Act,1961, only Rs. 1,50,000 in a financial year is deductible |
In comparison, ELSS offers higher returns than PPF. PPF is suited for individuals who are absolutely risk-averse and can afford a 15-year lock-in period. Investors who are willing to take a moderate risk to earn higher returns can opt for ELSS.
