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.

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