Public provident fund (PPF) and equity-linked savings scheme (ELSS) are two popular investment avenues available in India. While investments in both qualify for tax deduction under section 80C of the Income Tax Act, 1961, maximum up to Rs. 1.5 lakh in a fiscal, we have evaluated them on various parameters that will give you a holistic view of both these instruments and take your pick:

Parameters PPF ELSS
Ease of investment Investing in PPF is easy. You can open a PPF account in any designated bank of India by filling up the form. You can invest in ELSS directly from the website of the fund house. You can also approach an intermediary to invest in the ELSS fund of your choice.
Associated risk As PPF is a government-backed initiative investing in money-market instruments, it’s less risky. Being equity-oriented, ELSS carries a higher element of risk. However, this risk is mitigated to a great extent, if you remain invested for a long period.
Returns PPF returns are revised every quarter. Since they invest in money-market instruments, returns aren’t high. ELSS returns aren’t fixed, since it’s market-linked. However, in the long-run they have the potential to deliver double-digit returns.
Lock-in period PPF has a 15-year lock-in period. Partial withdrawals are allowed after completion of 5 years, capped at 50% of the balance amount. ELSS has the shortest lock-in period of 3 years, which means you can redeem your investments after 3 years.
Tax implications In PPF, the money invested, interest earned and the maturity amount are exempted from tax. PPF falls under the EEE (exempt, exempt, exempt) category. 10% long-term capital gains tax is applicable if the gains made are above Rs. 1 lakh in a financial year. Up to Rs. 1.5 lakh invested in a fiscal are exempt from taxation.
Investment amount The minimum and maximum amount you can invest in a fiscal is Rs. 500 and Rs. 1.5 lakh respectively. While the minimum amount you can invest is Rs. 500, there’s no cap on the maximum amount. However, note that only investments up to Rs. 1.5 lakh in a financial year are subject to tax exemption.

To sum up

Both PPF and ELSS have their own pros and cons. While PPF is relatively less risky than ELSS, the returns are lower compared to ELSS. In the long-run, investments in ELSS will help you generate returns that help you beat the effects of inflation. Also, ELSS is more liquid than PPF since it has a lower lock-in period. Depending on your risk appetite, financial goals and investment horizon, you can choose either of them or both.

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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