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PPF vs. ELSS: The Best Tax Saving Investment

When we talk about taxes, the one thing that crosses everyone’s mind (by everyone we mean EVERYBODY, irrespective of what amount their salary slip reflects) is “the more you save, the better life will be.”

The second tax season comes around the corner; everybody gets on their toes finding ways to save taxes. Now, in the tax saving world, there was once a time when saving the maximum amount used to be the ultimate aim. But today, that aim has shifted to saving maximum amount while earning revenues on the back of a tax saving investment.

In this article, we will be comparing two of the most trusted tax saving investment options that the world has grown to rely on – ELSS and PPF.

PPF as a tax saving mechanism

PPF is considered to be one of the most desirable tax saving investments among investors who are extremely risk averse. While PPF gives the investors a combination of three tax saving offerings – A. tax saving itself, zero risk return, and lastly returns that are tax free. According to the new Union Budget provision, an investor can easily deposit an amount of Rs.1.5 Lakh per annum in their PPF accounts, which can amount up to Rs.45,000 in tax savings, every year! The present PPF interest rate is 8%, up from the recent 7.6%.

ELSS as a tax saving mechanism

Equity Linked Saving Scheme or ELSS is considered to be one of the most profitable forms of tax saving investment for anyone who has even a slight risk taking appetite.

An ELSS is basically a type of diversified equity fund having lock period of around three years from the date when the investment is first made.

From the return taxability front, both – dividends and capital gains come out to be free of tax.  When you look at it from a long-term front, ELSS tends to offer a lot higher amount of returns when compared to all the other asset classes. But since the ELSS funds are linked to market, they are driven by volatilities and market risks.

But even after keeping all that aside, when you look at ELSS as purely an investment, you will find that in the past 10 years, ELSS schemes like SBI SIP Plan or HDFC SIP Plan have given their investors even greater than 19% of returns.

Now that we have looked into what both PPF and ELSS have to offer for investors looking to save tax and earn revenues at the back of it, it is only fair to give you a comparison on both.


Risk Tolerance High Low
Returns Higher Lower
Investment Horizon 5 to 10 years 15 years
Liquidity Higher Lower

As you could see from the table above, there are sections where PPF tends to be better than ELSS, specially for investor types to prefer to play safe, there are though sections where ELSS turns out to be a lot better investment option.

In the end, it all comes down to how risk averse you are. If you are okay with taking investment risks, go with ELSS mode of investment but if you are one of those people for whom mental peace comes above high returns, stick with PPF.

For those of you who chose the former – slight risk, high returns combination, i.e. Equity Linked Saving Scheme, ELSS, here are the ELSS funds you should invest in whatever’s left of 2018 and then 2019.

1.L&T Tax Advantage Fund

2.MotilalOswal Long Term Equity Fund

3.Aditya Birla Sun Life Tax Relief 96

4.Axis Long-Term Equity Fund

All of the funds mentioned above are currently offering short-term returns between 4.52% and 18.14%, with Axis Mutual Fund offering the highest and MotilalOswal Long Term Equity Fund offering the lowest in the short-term but the highest in the mid-term (18.99%).

*We have curated this list after studying the mutual fund schemes on a number of parameters like – Mean rolling return, Downside risk, Outperformance, Performance Consistency, and the Asset Size.

With this, you have now seen the two most preferred mode of tax saving mechanisms, what separates them from each other, and lastly the ELSS fund list that will get you the maximum returns, the next and only thing left to do is – get in touch with one of our finance experts and make a tax saving investment.