It is generally observed that people tend to invest hastily in PPF or ELLS at the end of the financial year just to avail tax benefits. The purpose of tax planning is to ensure tax efficiency without compromising on safety of your investments and returns thereon. Good planning will maximize the available tax benefits from your investment portfolio.
These include bank deposits, PPF, NSC etc. The biggest appeal for these products is their simplicity, familiarity, assured returns and government guarantee. But all of this is at the cost of very low returns.
ELSS funds give superior returns compared to other tax saving options
ELSS funds have the shortest lock in period of 3 years
ELSS funds give returns that are completely tax free
It is common practice for an individual to invest in PPF to avail tax benefit u/s 80C. Investments made in ELSS are eligible for such deduction as well. ELSS offers the same tax benefits as PPF without the minimum lock-in period requirement. Over the past 2 decades, ELSS has given an average annual return of 16-18 % as opposed to PPF's 6%.
In a nutshell, better flexibility and liquidity along with higher returns on equity makes ELSS a better option to invest for tax savings than PPF.
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