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Monday, March 24, 2014

ELSS vs PPF / NSC and FDs - Section 80 C Income Tax Investment options

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ELSS funds are a far better bet than PPF/NSC or other tax saving schemes to help their clients not only save tax, but also create long term wealth. Many clients are however not so convinced, given the last 5 years equity market performance.

This data has helped reassure the clients and restore faith in ELSS funds as the preferred destination for their tax saving investments.Reproduced below is a set of tables that explains the comparison of investments, Each table is for a 5 year period :


2000-2005, 2001-2006 and so on until 2007-2012. In each table, demonstrates how an illustrative ELSS fund and compares this with performance of PPF/NSCs and bank FDs over the same period. Assume that the investor invests Rs. 100,000 each year in the same ELSS fund over a 5 year period and compare that with a similar investment strategy of Rs. 100,000 per year for 5 years in bank FDs (at the then prevailing rates) and similar amounts in NSCs/PPF over the same 5 years.


The graphical representation alongside each table shows how the portfolio value moves on a year of year basis. Valuation lines of PPF/NSC and bank FDs are predictably straight and ELSS is predictably choppy. But, overall portfolio value of the annual investments in ELSS comfortably beat the returns from bank FDs and NSCs/PPF. The graphs visually depict that there are times when the portfolio value of ELSS dips below the fixed return alternatives – but, over all but one 5 year periods, long term wealth has truly been created by ELSS funds and not their fixed return competitors. Even in the solitary case where ELSS loses out (2004-2009 period), where the portfolio period closes in the worst bear market we have seen in recent history, But if the portfolio would have been held for just 1 more year, ELSS would have come out comfortably on top.

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