Are You Still In Investing In PPF?

In India, one of the favorite INVESTMENT option is PPF (Public Provident Fund). People prefer PPF primarily for SAVING TAX and get returns of close to 8.5%. Also the interest earned on PPF is also tax free which makes it lucrative for HNIs also. But the maximum amount that can be invested is Rs. 150000 per year. Taxation benefit available is on the entire amount under the Section 80C.

As a part of financial awareness, we feel investors should look at other options also. The one option we are discussing here is Equity Linked Saving Scheme (ELSS) funds. These funds are offered on mutual fund platform by various AMCs (Asset Management Company) and they invest in EQUITY MARKETS.

Advantages of ELSS over PPF:

  1. Liquidity: While PPF has lock in of 15 years (at least 7 years), ELSS are liquid after just 3 years.
  2. Dividend Option: There is an option of taking DIVIDEND which is also tax free in ELSS funds thus it increases our annual cash flows.
  3. Superior Returns: Over a long horizon, ELSS returns are far more superior than PPF. Yes we might see volatility in returns of ELSS in short term as they are equity linked but from a long horizon they easily beat PPF

We have made a comparison of PPF and HDFC Taxsaver  from the year 1996. Only reason we have taken HDFC Tax Saver is because it is one of the oldest ELSS scheme available.

If Rs. 10000 was invested every year in PPF and ELSS scheme on same day for past 20 years ( Total amount invested would be Rs. 200000), current value of PPF would have been Rs. 504300 and ELSS would have been Rs. 4466200. That’s almost 9 times.

Here is the calculation:

Comparison between PPF & ELSS

So it is advised to park your money in ELSS funds also to get good long term appreciation.