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Tax payers are worried about tax saving and most of them run around for tax saving options mainly during last quarter of the financial year. In a hurry to save taxes, they get caught into wrong products. They get caught by ill-educated Agents or advisers and get trapped into Insurance, Money back, ULIPs or PPF products where returns are negligible compared to inflation. But does Mutual Fund provide any tax saving option? Let us explore more and compare between PPF and Mutual Fund related tax saving option.
Mutual Fund provides a special category of tax saving funds, called ELSS (Equity Linked Saving Scheme). Funds of this category invest more than 90% of collected money in Equity schemes, investments are also covered under section 80-C of Income Tax.
Since, investment in any Tax saving schemes fall under Long Term Investment category, we will focus mainly on long term returns from ELSS funds.
Comparison of returns between PPF and ELSS over last 15 years
If one started investing Rs 5000 per month in PPF and ELSS 15 years back, the chart below shows the return generated from PPF and ELSS funds over last 15 years.
Return wise, ELSS is winner over PPF. Let us see what are other differences between PPF and ELSS.
| PPF | ELSS |
| Investment in PPF is mandatory for 15 years and there is at least 5 years locking. | ELSS has 3 years of locking. |
| One can withdraw only 50% of money accumulated 5 years before the date of withdrawl. | After locking period of 3 years, one can withdraw any money any time. Total flexibility. |
| After completion of 5 years, investment can be increased only in a block of 5 years. | No such restriction, Mutual fund investments and withdrawls are totally on the wish of the investor. |
| PPF Investment is debt scheme, money once accumulated does not goes down. | ELSS does not provide any guarrantee on returns, returns are subject to market performance. |
| Return of PPF has been around 8% over last 15 years. | Average returns from ELSS has been around 20% over last 15 years |
Hope this article provides you clarify on ELSS fund and its comparison with PPF scheme.
Do you want to know more? Do you want to start investment in ELSS Fund? We would be more than happy to help you.
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