PPF has grossly underperformed ELSS
For the longest time, PPF has been India’s most favourite tax-saving avenue. It has served most of us who aren’t privileged enough to get an inflation-linked government pension. Its sibling, the EPF has employers chipping in and many of us don’t have that luxury either. Our PPFs are funded from our own pockets without anyone’s help. It’s been our only friend in the battle against inflation, medical costs and spousal nagging.
Every year the Government let us set aside some money into the PPF and we did so dutifully and gladly. A tax exemption became a ritual and a pleasant one at that – we were providing for our future, aged selves. But what would have happened if we’d put this money to work in equity instead? We put this question to test by analyzing 20 years of data, ranging from 1999 to 2018. We analyzed two competitors of the PPF, Equity Linked Savings Scheme (ELSS) and a pure index investment and the picture it has revealed is one of terrible underperformance by our ‘only friend.’
For the sake of parity, we took the average returns of the ELSS category. So, we considered a Rs1.5 lakh investment every year (making the total invested corpus Rs 30 lakhs), starting in 1999 and ending in 2018.
The return on PPF came out to be Rs. 77.8 lakh, whilst an investment in an ELSS fund would’ve added up to a whopping Rs. 2.3 crore, almost 3 times higher! Whereas, simply investing in the index would have given a decent return of Rs. 1.5 crore, which is almost double the PPF returns. The post-tax returns on ELSS and index fund would be slightly lesser but they would still handsomely beat PPF returns.
So, it might not be a bad idea to get out of one’s comfort zone and explore the ELSS route, even if partly.