Why just to save only tax while you can save tax and also earn better return through Mutual Fund

If you are salaried then your EPF and your life insurance premiums are already qualified as an eligible investment option to get the benefit under 80 ©. Rest of the money you may invest either into the 5 years bank FD, PPF, NSC or ELSS. Except ELSS all other tax saving instruments will generate the fix return which might not even be sufficient to give you the cover against inflation.

Apart from the Life insurance policies premium and EPF, PPF is the most preferred choice of investor for investing for 80©. While PPF has many merits including the assurance and safety along with the stable return, it lacks when it comes to inflation adjusted better return. To get the comfort of assured and stable return you need to sacrifice the chance of earning the higher return.

While on the other hand, ELSS (Equity Linked Savings Schemes) has a very good track record in terms of giving the better inflation adjusted return than PPF in longer run; it is still not very popular due to the fact that it doesn’t give you any assurance and predictability of returns.

Investing into the ELSS may give you the dual benefit of tax saving and higher return. You can get the investment option where you get the higher probability of getting far better return than the PPF in longer run. Though in short run ELSS can be much more volatile and unpredictable due to the fact that it invests into the equity and equity related instrument which are connected to market movement.

ELSS can be a very good alternative compared to PPF, because minimum investment cycle of PPF is 15 years i.e. very long term.

ELSS vs PPF

Let’s look at the historical performance of the ELSS vs PPF.

In case of ELSS return is market driven. As on 31st March, 2015 the average return for last 12 years of all ELSS schemes is 24.66%. Following is the comparison of the return of ` 100000/- invested every year into ELSS vs. PPF. Analysis gives you an idea about minimum, maximum and average returns generated by any ELSS schemes out of all available ELSS schemes as on 31st March, 2015. Returns generated by even the worse performing ELSS schemes have given the better returns than PPF as on the given date.

Years 5 10 12 Investment 500000 1000000 1200000 Maximum (ELSS) 11,66,023 30,93,292 70,50,286 Minimum (ELSS) 8,12,305 21,58,779 35,70,806 Average (ELSS) 9,29,566 26,26,812 51,43,643 PPF 6,44,940 15,97,279 20,93,487

Also apart for the return ELSS is better in terms of least lock in period i.e. 3 years from the date of investment.

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