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How should I split Rs 1.5 lakh between PPF and ELSS?

If you have any mutual fund queries, message on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.

ET Online|
Aug 14, 2018, 02.51 PM IST
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Mutual Funds
What would be the best way to split the Rs 1.5 lakh tax benefit under section 80C of the Income Tax Act between PPF and ELSS? Are there any other better investment avenues that can be claimed under section 80C?

-- Sneharghya Pathak

The best for an investor need not suit another investor. Public Provident Fund (PPF) and Equity Linked Saving Scheme (ELSS) are two popular investment options available under Section 80C of the Income Tax Act. Apart from the fact that both these options qualify for tax deductions under Section 80C, they are totally different.

For example, a PPF account is a 15-year product; you must contribute at least Rs 500 every year to keep it alive; you can take a loan or partly withdraw money from it after five years; more importantly, PPF offers tax-free returns. On the other, an ELSS or tax-saving scheme comes with a three-year lock-in period. You can withdraw your investments in it after the completion of three years. Returns would attract long-term capital gains tax of 10 per cent (on gains of over Rs 1 lakh).

As you can see, these products are meant for different investor profiles. A conservative investor looking to invest in a long-term product to achieve long-term financial goals like retirement, child’s education, and so on, can opt a PPF account. An aggressive investor looking to save taxes and earn extra returns can opt for tax-saving mutual funds.

Many advisors ask investor to divide Rs 1.5 lakh between these two products. That is just a gimmick. There is not proper plan behind. When it comes to tax planning, all you need to look for is the best tax-saving investment option that will help you to achieve your financial goals.

(If you have any mutual fund queries, message us on ET Mutual Funds on Facebook. We will get it answered by our panel of experts.)

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