Most people usually select the Public Provident Fund route, which seems best suited to their needs. Well, but little do people know that Equity Linked Savings Scheme (ELSS) is a better option. In this article, we will analyze the ELSS vs PPF trend, and conclude which is better.
ELSS is provided by all the asset management companies. It offers an investment option to save tax and also offers a lower lock-in period of three years duration. It only does not offer secular growth. It gives compounded growth with volatility. Due to the volatility, investors don’t usually prefer it.
ELSS VS PPF: Tax Benefits Compounding Benefits Of ELSS
When an individual invests which is eligible for taxed income deduction under Section 80C of the Income Tax Act, the highest allowed investment is Rs. 1,50,000. It is locked-in. One cannot redeem the investments for a certain tenure. For FDs, it is five years. With PPF, it is 15 years, meanwhile, with ELSS it is three years.
Although ELSS has a higher volatility, it provides a compounded growth rate. ELSS also has a better rate of compounding benefits.
In this fifteen year period, Sensex ended the year negatively on five different occasions. This means that one-third of the times, the Sensex was in red. For the first five years, the returns created by PPF was more than the ELSS schemes’ returns. Only from the sixth year, ELSS began to generate an aggregation more than PPD. Then over a fifteen year period, the absolute returns generated were more than the three times generated by the PPF.
If you look at periods from 1999 to 2003 to 2007, ELSS returns are higher than the ones by fixed incomes under which the Section 80C investments result currently.
If an investor can withstand the unpredictability of price movements in NAV of the ELSS, then it shouldn’t be much of a problem. Learning the trend is the shortcut to successfully utilizing it. It gets more compounded over a longer duration. An investor just needs to sort out the investment period, so that they don’t miss out on larger corpus due to not educating themselves about it.