ELSS vs PPF

Equity Linked Savings Scheme ELSS Equity Linked Savings Schemes ELSS are commonly known as tax saving equity mutual funds. There is a lock-in of 3 years. Every investment in ELSS is subject to a lock-in of three years i.e. you cannot take your money out before 3 years. If you are investing in ELSS through SIP, every installment of SIP is locked in for three years. For, units purchased through installment on January 15, 2016 can be redeemed on January 16, 2019. Units purchased on Feb 15, 2016 can be sold on February 16, 2019. Investment in ELSS is eligible for tax deduction up to Rs 1.5 lacs under Section 80C of the Income Tax Act. Do note the cap of Rs 1.5 lacs is for investment in all the products in Section 80C basket put together. There is no limit on the amount of investment in ELSS per financial year. You can invest even Rs 10 lacs or even more in a financial year. However, the tax benefit under Section 80C is limited to Rs 1.5 lacs per financial year. The returns are market-linked and are not guaranteed. Under the extant income tax laws, long term capital gains holding period more then 1 year on sale of equity mutual funds are exempt from tax. Since ELSS investments cannot be sold off before 3 years, any capital gains on sale of ELSS units will be long term and hence tax-free. Dividend from equity mutual funds is exempt from tax. Therefore, if you opt for dividend option, dividend will be tax-free in your hands. Non-residents can invest in ELSS. Public Provident Fund PPF PPF account matures after 15 years. So, the lock-in period for PPF investment reduces every year. However, with ELSS, every investment is subject to a fresh lock-in of three years. After initial maturity of 15 years, you can extend you PPF account in block of 5 years. There is facility of loans against your PPF balance from the third year. Partial withdrawals are permitted from the seventh year. You can put a maximum of Rs 1.5 lacs in your PPF account (and in PPF accounts where you act as guardian in a financial year. Excess amount will not earn interest. Tax benefits under Section 80C up to Rs 1.5 lacs PPF falls in Exempt-Exempt-Exempt EEE category. Interest earned and the maturity amount is exempt from income tax. Returns are not fixed. Interest rate for the year is notified by Ministry of Finance, Government of India. Interest rate for FY2016 is 8.7% p.a., which is excellent for a debt product. Non-residents cannot invest in PPF. If the account was opened before becoming non-resident, the account can be continued with contributions till maturity.