ELSS by HDFC TaxSaver-Growth Plan or PPF: Which one is your long-term investment choice?

ELSS by HDFC TaxSaver-Growth Plan or PPF: Which one is your long-term investment choice?

Feb 14, 2018

Haven’t you lately heard people talking about HDFC TaxSaver-Growth Plan? Does the inquisitive ‘you’ wants to know what this plan is all about? If answers to both the questions is-yes, we have a pool of information to feed your inquisitive mind.

What is HDFC TaxSaver-Growth Plan?

It is an Equity Linked Savings Scheme (ELSS) launched in the year 1996. With a total asset of 6690.89 Cr as on (31-07-2017), it sure is a popular product. The minimum investment and topup cap permitted for this scheme is INR 500. As the name suggests, it belongs to the equity asset class and is an alternative to PPFs.

Is ELSS by HDFC TaxSaver-Growth Plan more profitable than PPF?

Let’s suppose, you are a young working professional who needs to make an investment for tax saving benefits. Now, with so many options at hand, feeling a little spoilt for choice is obvious. Despite that, you don’t want your sense of judgement to get blinded. You want to zero in on an investment option that would keep your funds immune from market downturns and ensure the best returns at the right time.

But how do you figure out what is best for your needs? Let’s first listen to what your dad or someone his age has to say. He would probably not suggest anything beyond Public Provident Fund or PPF. Because all his life he has been told how great they are, and how amazing a fixed income-oriented investment, PPFs turn out to be.

In addition, PPFs are supported by the Government of India, and both withdrawals of funds and incomes made from interest are tax free.

Now, can there be a more valid reason to say yes to PPFs? Well, there can be. And one of the best and the most important reasons is Equity Linked saving Schemes, abbreviated as ELSS. If the mention of the term ‘equity’ has aroused doubt and suspicion in your mind, just shoo it away. Equities over a longer run can yield great returns, sometimes way too much to ignore. And because they are so flexible, managing your funds become easy. Even with an amount as low as 1.5 lakh, investment can be made year after year.

PPF, on the other hand, is a fixed income investment option. And the biggest flaw with fixed income products is that they offer limited returns. And with inflation rising by the day, the real rate of return against a PPF investment is going to be very-very low. Such low returns are not going to be of any help to you if you dream big for your future. Even if your father had invested in an ELSS some twenty years back, the return he would, at the time of his retirement, have received would be almost double of what he would have received from his PPF investment.

Now, let’s look at a quick comparison.

Source: Swaraj Wealth Research

The figure above highlights a comparison between the returns obtained from an ELSS by HDFC TaxSaver-Growth Plan and a PPF. While PPF returns are pegged at 8.67%, HDFC TaxSaver-Growth Plan’s returns are much higher at 19.76%. And this verdict covers a period of 15 years (from 2002 to 2017) for the Equity Linked Savings Schemes.

If ELSS schemes like HDFC TaxSaver-Growth Plan are so amazing, why are people apprehensive about them? Because they factor in the aspect of risk more than anything else! But most people are not aware of a simple fact that equities are not risky by nature or on all occasions. Equities are mostly risky when the investments are for a shorter term. Long term equity investments pose much lower risks than the short term ones.

Source: Swaraj Wealth Research

Even the Growth curve for HDFC TaxSaver-Growth Plan so far has been on a relentless upward move, with a few small dips here and there.

One thing that may certainly be inferred from this discussion is that investments should not always be viewed from a tax saving angle. When you do this, your options become restricted.

So, with tax-free redemption as well as interest incomes, higher liquidity, and other amazing benefits, ELSS by HDFC TaxSaver-Growth Plan is a far better choice for anyone looking to make a long-term investment.

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