ELSS vs. PPF vs. FD: Investors today have numerous options, but it’s often difficult to decide which is best. Many people struggle between saving taxes and earning safe returns. Three key options, ELSS, PPF, and FD, are the most popular. All three aim to promote savings and investment, but their rules, returns, and lock-in periods differ.
Equity Options for Higher Returns
Equity Linked Savings Scheme (ELSS) is a mutual fund-based investment scheme that offers tax exemptions of up to ₹1.5 lakh under Section 80C of the Income Tax Act. At least 80 percent of these funds are invested in equities. ELSS has a lock-in period of only three years, making it the shortest option in the tax-saving category.
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Long-term investments in ELSS can yield an average annual return of 10 to 14 percent, although they involve market risk. ELSS may be a suitable option for investors seeking higher returns with a lower risk.
Stable and Secure Government Scheme
The Public Provident Fund (PPF) is a government-guaranteed investment scheme that offers fixed and secure returns. Currently, PPF offers an annual interest rate of 7.1 percent. It also offers tax exemptions of up to ₹1.5 lakh under Section 80C.
It has a lock-in period of 15 years, which can be extended. Investors receive full tax exemption on interest, and the maturity amount is also tax-free. PPF is considered an excellent option for those seeking long-term security and stable returns.
Traditional but limited benefits
Fixed deposits (FDs) are the oldest and most popular investment instruments in the banking sector. Investors can choose the tenure of their choice—it can range from a few months to several years. FDs currently offer an annual interest rate of 6 to 6.5 percent.
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However, FD earnings are taxable, meaning taxes are payable on the interest. While it’s risk-free, returns are often limited compared to inflation. FDs may be a better option for investors who prioritize capital protection.
Comparisons to Understand the Right Choice
If you have a high risk tolerance and want higher returns over the long term, choosing an ELSS may be beneficial. However, if safety and stability are a priority, PPF is a reliable scheme. On the other hand, FDs are suitable for those who want fixed interest rates and avoid market risk.
