ELSS vs PPF: The Great underperformance of PPF in last 25 years
Choosing the right investment avenue can be a daunting task, especially when considering long-term financial goals like retirement or a child’s education.
Two popular options that often come into the spotlight are
- Equity-Linked Savings Schemes (ELSS)
- Public Provident Fund (PPF).
Both offer tax benefits, but they differ significantly in terms of risk, return potential, and liquidity. In this article, we’ll delve into the key differences between ELSS and PPF to help you make an informed decision.
We are not going to discuss here the products, as i think people are aware of the features of both
The question was why do people prefer Public provident fund ( PPF)
- Offer Guaranteed returns
- Tax benefit under section 80C, when you invest
- The interest earned was tax free
- The maturity is tax free
As an advisor I have been an advocate of PPF, BUT PPF has underperformed ELSS in a big way.
Lets look at the returns made over the years , if person deposits Rs 1,00,000 every year on 31 March , since 2000 to 31 March 2024 , a close 25 years of investment
For our article’s sake I have taken the HDFC tax Saver fund Growth Regular plan.
The Outperformance
15 years – PPF made Rs 27,78,383.76 vs ELSS Rs85,28,783.14 i.e 3 times of PPF amount
20 Years – PPF made you Rs 47,16,594.97 Vs ELSS Rs 1,68,92,247.22 i.e 3.5 times of PPF amount
25 Years – PPF made Rs 72,73,968.04 vs ELSS Rs 3,80,31,702.24 i.e 5 times of PPF .
In my experience people who are investing in PPF Continue with even after maturity, but even 3 times outperformance is just mind boggling
The myth of Guaranteed returns vs not guaranteed
In this period equity markets had 2 down turns.
The lines highlighted in yellow are those years lets see how much did ELSS made you lose in this year vs PPF
10th year – PPF was at Rs 1,464,093.39 vs ELSS Rs 27,80,241, Ohh Still ahead of PPF by 1.89 times of ELSS
21th Year- PPF 51,90,620.96 vs ELSS Rs 1,14,65,714.48 , Again Outperformance by 2.2 times
Even during the worst downturns we have seen the ELSS outperformed the PPF.
What Next ?
- The PPF rates at 7.1% are bound to come down in future as and when the rate cuts would start to set in. So the future may hold less earning
- ELSS provide better liquidity, which missed here ( even though not recommend)
- ELSS you have to pay tax lets see if tax payment makes it less attractive , equity being taxed at 12.5% , so
- 15 years – PPF made Rs 27,78,383.76 vs ELSS Rs 74,62,685.12 i.e 2.6 times of PPF amount
- 20 Years – PPF made you Rs 47,16,594.97 Vs ELSS Rs 1,47,80,716.12 i.e 3.1 times of PPF amount
- 25 Years – PPF made Rs 72,73,968.04 vs ELSS Rs 3,32,77,739.25 i.e 4.5 times of PPF .
Conclusion :
Any person who is looking to make an investment in PPF for 15 years should consider how much money he/she is losing in the when he is going to invest in PPF for 15 years .
Learn more about Best ELSS funds.
