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ELSS vs PPF, vs FD which to choose when? At the time of deciding how to save for your future, the variety of long term savings options can be confusing. Read this guide by H&R Block India and learn about differences between these popular investment choices, which have tax saving benefits.

Which is the Best Investment Option? ELSS vs. PPF vs. FD

Last Update Date : April 12, 2018

Things don’t come on a platter unless you are born with a golden spoon.

Everyone is aware that saving money should be the top priority and many of us look for smart and quick money saving options. But did we ever give a thought that there is a huge difference between saving money and investing?

Let’s look at how to invest your hard-earned savings that would define your financial strength. In this article, we will go through the key differences between ELSS, PPF and FD that would help you take a decision in where to invest as per your financial goals and risk-taking capability.

which is better - elss vs ppf vs fd

Equity Linked Saving Scheme

Equity Linked Saving Scheme (ELSS) is a variety of mutual funds which are invested primarily in equities.  As an equity fund, the returns are reflected in equity markets and reported as capital gains on your ITR 2.

  • From the start of your investment date in ELSS, there is a three year lock in period.
  • Investment in ELSS is eligible for deductions u/s 80C of up to Rs 1,50,000.
  • Major advantage is that even after 3-year lock-in period, one can continue to invest in the scheme.

[ Read: Equity Linked Savings Scheme Guide ]

Public Provident Fund

Public Provident Fund (PPF) is another common investment among Indians for generations/ages as it’s from the Central Government. Public Provident Fund is one of those investments that would suit any kind of investor which is completely safe and not market dependant like other investment options.

  • PPF has a lock-in period of 15 years and can be extended for 5 years each on maturity with or without depositing money into the PPF account.
  • Partial withdrawals can be made from the 7th year onwards.
  • Investment in PPF is eligible for deductions u/s 80C of up to Rs 1,50,000.
  • The amount to be deposited annually would be between Rs 500 – Rs 1,50,000 to maintain an active account and can be revised by government.

Fixed Deposits

Fixed Deposits are one of the most common and preferred method of investments. This is the most favourite investment made by our father, grandfather and is followed even till date. They are completely free of risk and are meant for those people who are not ready to take any risk.

  • Investment in a tax saving Fixed Deposit (FD) as the name suggest, is an FD that offers tax deductions u/s 80C.
  • The minimum lock in period is five years and you can invest up to Rs 1,50,000.
  • There are two types of Tax Saver FD’s: Single and Joint holder deposits.
  • In case of Joint FD only the primary holder would be able to get the tax related benefits.
  • The rate of Interest is decided by the bank which remains the same for all 5 years
  • A major plus point is that NRI’s can also invest in Tax Saving FD’s.

Difference between ELSS vs PPF vs FD

Here are various features of the most common Investments made by investors that are eligible for exemption u/s 80C of Income Tax of India Act, 1961.

Particulars ELSS PPF FD
Eligibility to Invest Any Individual Taxpayer including NRI’s Resident Indian individuals Any Individual Taxpayer including NRI’s and HUF
Investment Amount 500 to No Limit 500 to 1,50,000 100 to 1,50,000
Lock-in Period 3 15 5
Tax on Returns Tax Free Tax Free Taxable
Expected Returns 10-15% (market linked)
Risk Risk Involved Risk Free Risk Free
Loan Facility Partial loan after 3-year lock-in period Loan option available after 3 years No loan option available
Tax Benefit Rs. 1.5 lakhs u/s 80C Rs. 1.5 lakhs u/s 80C Rs. 1.5 lakhs u/s 80C
Investment Option Medium – Long term Investment Long term Investment Medium – Long term Investment

Should You Invest in ELSS or PPF?

So, having understood the meaning, features and differences of the most common investment options ELSS PPF and FD, it’s time to check where to invest and get good returns.

Hence, it’s very important that along with savings, one needs to invest them in a right manner. It again depends on future needs, age and risk-taking abilities of the individual.

Those who have a high tolerance to risks can opt for ELSS while PPF can be opted by those who can tolerate low risk. For example, it’s like a young person who is 25 years of age can invest in ELSS while another individual who is nearing retirement or is at an age of 50 can opt for PPF or FD related investment.

Top Reasons To Invest In ELSS

ELSS is of popular among retail investors for long term saving along with investment. In case invested at the right time, ELSS can do wonders and reap good returns along with the following benefits:

  • Lock-in period is short
  • High Investment Returns
  • Tax Benefits
  • Long term Investment Option

Past Performances of Some Funds

Here is the table that would give you a fair idea on how investment in ELSS would give returns in the long run as per market conditions.

Note: These details are just for information purpose and is not to be considered as investment advisory.

Fund 6 months (%) 1 year (%) 3 year (%) 5 year (%)
IDFC Tax Advantage (ELSS) Fund Growth 6.5 23.1 11.7 22.3
Tata India Tax Savings Fund Growth 1.5 14.6 12.3
L&T Tax Advantage Fund Growth 2.8 16.2 13 20.3
Aditya Birla Sun Life Tax Relief ’96 Growth 6.9 19.3 12.1 23.5
Aditya Birla Sun Life Tax Plan Growth 6.6 18.9 11.6 22.6
DSP BlackRock Tax Saver Fund Growth 0.277 9 11.4 21
Axis Long Term Equity Fund Growth 5.4 18.1 9.3 24

So after considering the three products that are completely different, there is no right or wrong product. We have compared eligibility criterion, who can invest, lock-in period, tax status etc along with the risk factors.

ELSS can be considered over and above the tax benefits looking at its features as long-term investment which has the potential to provide the best in category returns.

At the same time, PPF is the safest long-term investment.  As we have seen the investment options to be considered u/s 80C of Income Tax Act, 1961, one can make a wise choice as per their future needs, financial situation and investment horizon.

To ensure you avail of the best tax planning and saving options suited to meet your needs perfectly, take the aid of the tax experts at H&R Block India.

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