Should I extend my PPF account or invest in ELSS?

I am 51 years old. I do have a PPF account which gets completed this March 2023. As per my original plan, I have decided to extend for another five years. I'm not in need of the money in the near future. I contribute Rs 12,500 per month. My question is whether to consider the same or can I invest in ELSS (Section 80C)? My main concern is PPF returns are not taxable and not so in ELSS. I am in the 20 per cent tax bracket. Kindly advise. - Senthil Kumar

At Value Research, we always emphasise long-term investments in equities as they generate much better returns over debt. Since you are not in need of the money in near future, investing in an ELSS fund (which invests in equities) would be a better idea than investing in PPF (which is a debt investment). We assume that you have prior experience in equity investment, and your investment horizon is at least five to seven years or more. Also, keep in mind that ELSS investments have a lock-in period of three years.

Regarding your concern about tax exemption for PPF returns versus ELSS, note that historically, post-tax returns on ELSS have outperformed tax-free PPF returns. Also, remember that a good tax-saving investment must be an investment first and a tax-saver later.

For understanding the difference between popular tax saving avenues, watch our Investors' Hangout episode here: NPS vs PPF vs ELSS.

Suggested read: Old or new? Which tax regime is better after Budget 2023