PPF vs ELSS Mutual Fund: Both give income tax benefits! Which investment option is better? Check expert opinion

PPF vs ELSS Mutual Fund: Public Provident Fund (PPF) or Equity Linked Saving Scheme (ELSS) mutual funds have many similarities when it comes to income tax savings.

PPF vs ELSS Mutual Fund: In PPF, there is no income tax on the maturity amount while in ELSS mutual funds, there is 10 per cent LTCG tax levied on the maturity amount. Photo: Reuters

PPF vs ELSS Mutual Fund: Public Provident Fund (PPF) or Equity Linked Saving Scheme (ELSS) mutual funds have many similarities when it comes to income tax savings. However, when it comes to returns, there is a huge difference. According to tax and investment experts, an investor who invests in PPF is getting around 7.9 per cent returns in the current quarter, but in the long-term, one can expect around 8 per cent returns. But, in ELSS mutual funds, one can expect around 12 per cent returns in a long-term time horizon. Interestingly, both PPF and ELSS mutual fund investments give income tax exemption on up to Rs 1.5 lakh investment in a financial year. So, it becomes important to know which investment is better and why?

Speaking on PPF and ELSS mutual funds, Alok Aggarwal, Head — Research Advisory at Bajaj Capital said, "On investment in PPF and ELSS mutual funds, an investor can get income tax exemption under Section 80C of the Income Tax Act 1961. in PPF, the maturity period is fifteen years while in ELSS mutual funds there is a lock-in period of three years. PPF is completely a debt fund while ELSS mutual fund is an equity investment with diversified equity portfolio. Hence, for those investors who want both income tax exemption and better returns, ELSS is a better option than PPF. But, much depends on the risk appetite of the investor. In ELSS mutual fund, there is risk involved which is subject to market performance while in PPF, there is assured guaranteed returns which are announced by the Central Government on a quarterly basis." So, those investors who have lower risk appetite should go for the PPF investment as it has zero risks involved.

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Asked about the returns that an investor can expect in PPF and ELSS mutual funds, Aggarwal said, "In PPF, currently the interest rate given is 7.9 per cent while in ELSS mutual funds, it depends upon the market performance. But, in normal circumstances, in a long-term perspective, an investor expects around 12 per cent returns in ELSS mutual fund investment. In PPF, there is no income tax on the maturity amount while in ELSS mutual funds, there is 10 per cent LTCG tax levied on the maturity amount." Aggarwal said that in ELSS mutual funds, 95 to 100 per cent investments are in equity that makes the ELSS mutual fund an attractive option for the investors as it provides a diversified equity package for the MF investors along with income tax benefits.

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