Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF) are the most beneficial investment options currently. But there is variation in both of them regarding the investment amount return rates and risk factors. Thus before making a selection between the two, all factors have to be considered. Different investors have different demands and depending on those requirements the choice needs to be made.
ELSS vs. PPF: Initial Investment Amount
There is no maximum limit for investment in ELSS. Thus for investors having significant monetary assets, it is beneficial. The more the initial investment, the more is the return value. In the case of PPF which is government monitored, there is a maximum limit for investment. A PPF account holder cannot invest more than INR 1.5 Lakhs per annum. So, with respect to initial investment amount, ELSS is more flexible.
ELSS vs. PPF: Lock-In Period
ELSS has a lock-in period of 3 years. Thus the money invested in ELSS cannot be completely withdrawn for about three years. PPF has a lock-in period of 15 years. The money invested in PPF cannot be completely withdrawn till the maturity period is reached. Though withdrawals can be made from PPF after five years of investment, that is only up to a certain limit. Thus, comparing flexibility in the lock in period, ELSS triumphs PPF.
ELSS vs. PPF: Return Rates
ELSS is mutual fund investment in market shares by equity funds. Thus the return rates depend on the current share value of the market. PPF is a government monitored fund.
Thus the return rates are set by the Central government for each financial year. By far a graph between PPF and ELSS suggests that PPF has an average return rate of 8.2% per annum while some ELSS has a return rate of 17% per annum.
Thus, ELSS is more advantageous in terms of return rates as market return rates being higher than government return rates.
ELSS vs. PPF: Risk Factor
Investing in market shares involve a lot of risk factors. In a scenario of a disadvantageous market condition, the share rates for a company may go downhill. Thus investment in ELSS is prone to a lot of risks.
PPF being government monitored are liable to a much lesser risk factor as the dip in government interest rates is not very significant. In fact, PPF is the least risky form of investment. Thus, as far as the risk factor is considered, PPF is a much better option.
ELSS vs. PPF: Tax Benefits
Both ELSS and PPF are subject to the exemption of taxes under the Section 80C of Income Tax Act. A tax benefit of 1.5 Lakhs stands for both investment policies. Also, the withdrawn amount at the end of the investment period is completely exempt from taxes as both ELSS and PPF come under the EEE (Exempt, Exempt, Exempt) category.
Which One Among ELSS And PPF should You Invest In?
ELSS is a beneficial policy for investors who have a risk appetite and demand very high return rates from their investment. Moreover, a business minded individual who has thorough knowledge about the market share rates should consider ELSS. Though in the case of ELSS, the longer the investment period, the better is the return, it is flexible. So for an investor who has short term goals of maximizing profits on investment should go for ELSSS.
PPF is a beneficial policy for those who are looking at risk-free and long-term investment goals. The return rate is decent, and investment is annuitized and managed properly.