It has been observed that though the employees are informed well in advance at the start of the financial year, the action usually starts from dec till march end. People do not make any attempt to understand pros and cons of the financial products before purchasing but end up investing or purchasing non productive insurance policies, other financial products in the last minute haste to save taxes, but in turn the money is locked in for the long-term, and the pity of the situation is that the entire exercise does not serve their financial objectives.
When it comes to long term financial goals and attractive tax saving instruments. PPF and ELSS are two popular options available. Both of these instruments offer EEE benefit.
E-Investment gets tax benefit
E-Capital Gain is tax exempt
E-Withdrawal is tax exempt.
Before we move on let’s look at their pros and cons
ELSS / PPF Investment objective
PPF is government backed and invests in long term securities. It is linked to 10 year government bond yield and earns 0.5% More interest than the average 10-Year Govt. Bond Yield making it a robust and capital protected savings scheme and provides guaranteed returns and hence carries lower risk. Whereas the money routed via ELSS( Equity Linked Saving Scheme) are invested in the Financial markets and are equity mutual funds and carries higher risk, having a lock-in period of 3-Years from the time of the initial investment date.
CAGR of last 10years in PPF is merely about 8.2%, In the year 2000-2001 PPF has given return of 12% it has been declined in the recent years. Whereas ELSS has generated return of 15% over 10year time horizon. PPF barely gives you inflation adjusted return, ELSS would not only help you to beat inflation but also helps you to build your wealth .
PPF can be withdrawn after 15years so if you have long term time horizon for your Financial Goals and you are not willing to take any risk then you can consider investing in PPF .
ELSS on the other hand has lock in period of 3 years and you can link your withdrawal amount to your medium term financial goals like car buying, home buying or vacation or can consider for your retirement which would help you for your capital appreciation.
At the end, if you already have enough equity exposure in portfolio you can invest in PPF nor invest in ELSS which would help you for creating wealth as well as would be tax efficient. Consult financial expert and take advice of them before you start investing.