Equity Linked Savings Scheme (ELSS) vs Provident Fund (PF)

In this article we compare the investments in Provident Fund (rather Voluntary Provident Fund) and that made in Equity Linked Savings Scheme (ELSS).

Most of the salaried class invest in Provident Fund (PF) that falls under Section 80C for tax saving purposes. A few clients also prefer investing in Voluntary Provident Fund (VPF) and Public Provident Fund (PPF) to meet the 80C requirements. We have done a comparative study of ELSS vs PF to see which investment avenue amongst the two is better. We have taken last 10 years of actual data for the purpose of this analysis. 

We have taken Rs 1,50,000 invested in PF on 1 April, 2008 & a similar amount invested in Aditya Birla Sunlife Tax Relief 96 Fund. This is done for next 10 years. We can give calculations of any other fund with any other assumption. The calculations are given below:
The table above shows that Rs 1.5 Lakh invested every year for 10 consecutive year leaves you with a corpus of ~ Rs 28 Lakh
Now let us consider investment made in Equity Linked Savings Scheme (ELSS). We have taken actual NAVs observed in the last 10 years for the purpose of this analysis.
Equity Linked Saving Scheme is giving 55.3% higher value than Voluntary Provident Fund!. Those who cannot invest in Voluntary Provident Fund & hence invest in Public Provident Fund there returns are still lower at Rs 27,35,987.
Even after accounting for taxes the ELSS gives better returns. ELSS are risky as compared to PF as they are equity-oriented mutual fund investment & the returns will depend on market conditions. But the returns generated by ELSS is much higher than PF and is worth the risk.
Investors should realise that they are losing a huge opportunity by continuing to invest in debt funds and shift from investing in VPF to ELSS.
Other investment avenues under section 80C and their returns are shown in the table below
Do let us know in case of you have any questions on your tax saving investments.
Happy investing.

Comments

Post a Comment

Popular posts from this blog

Do not sign on a blank insurance form

Image
Life is precious and you cannot let your hard earned money go down the drain by falsified insurance policies. Life Insurance is purchased to ensure that your family is able to take care of themselves financially, in case of any unfortunate incidence. Whilst the emotional vacuum can never be filled, a life insurance policy helps your family in bearing the financial burden that befalls.  My experience, over the past several years, has taught me many things that I would like to share with you. Many times, I have seen people not being comfortable declaring pre-existing illnesses while purchasing a life insurance policy. The fear of raised policy premiums or rejection of a life insurance policy, altogether, renders individuals in a confused state of mind. I would like to remind the readers that insurance is a business of utmost faith. The insurance company relies on your declarations and then decides to issue the policy. At the time of making the claim, the claims de
Read more
Image
Mr. Jain, a 60-year old hard working man retired this year after an illustrious career. He currently has Rs 1 Cr. as his retirement corpus. He also had other sources of income such as rents from properties and based on this he came under the 30% tax bracket. His current financial objectives currently are -                1)  Receive a steady income post retirement for his family                2) Preserve the corpus for distribution for his children His first thought was to invest his entire retirement corpus in a bank fixed deposit and achieve a 7% interest – giving him an annual income of Rs. 7 Lacs (pre-tax). Mr. Jain came to us with his corpus asking for advice on other options. We told him about debt mutual funds which have favourable tax treatment and about the concept of a Systemic Withdrawal Plan (SWP). SWP is a feature provided by Mutual Funds where an investor can withdraw a fixed sum as desired from the initial lump-sum investments. He can also factor in an incr
Read more

Rising Costs of Health Insurance - What should you do?

Image
Health Insurance is an essential policy that we recommend all our clients to get coverage for. Health issues often come up with increasing regularity and for professionals an insurance policy ensures that you get cashless treatment or reduces the total amount of expenses you may incur, in case you fall ill. We were approached by our friend with the problem of very high insurance premium for his existing health insurance policy. It needs to be brought to the attention of our readers that health insurance premiums have increased by nearly 50% over the past year. The health insurance companies are increasing the premium by modifying the policies & then forcing the insured to migrate to the new policy or face loss of insurance coverage. In most cases the insured switch over to the new plans without reviewing whether the new policy rules are still favorable or not. When we review the health insurance policies, we find that they have a plethora of benefits which may not make
Read more