ELSS vs PPF vs Small Savings Schemes: At the time of Income Tax Return (ITR) filing, tax saver small savings schemes become one of the most popular investment tools for taxpayers. To curtail income tax money outgo, small savings schemes like public provident fund (PPF), Sukanya Samriddhi Yojana, Kisan Vikas Patra, EPF, and other small savings schemes are the top choices among investors. However, there is one more option for them, which is ELSS funds, which is purely an equity mutual fund. As per Section 80C of the income tax act, one can claim income tax exemption on its ELSS funds' investment up to Rs 1.5 lakh in a financial year. However, it should be noted that it includes all investment schemes falling under Section 80C. According to tax and investment experts, if someone has higher risk appetite, ELSS scheme is the best tax saving scheme available to them because it not only give income tax exemption under Section 80C, in the long-term time horizon, it gives at least 12 per cent returns on investment, which is much higher than any of the small savings schemes.

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Speaking on why ELSS mutual fund is better than PPF, EPF, Sukanya Samriddhi Yojana and many more small savings schemes, CS Sudheer, CEO & Founder of IndianMoney.com said, "ELSS has the shortest lock-in of just 3 years among all tax saving instruments under Section 80C. This is not the only advantage ELSS enjoys over other tax-saving instruments. ELSS is a tax saving mutual fund that gives optimum returns only on staying invested for the long term.  The mandatory lock-in period of 3 years forces you to stay invested for the long-term. A big reason for investing in the ELSS are the high returns this investment yields. Safe tax-saving options like PPF and NSC offer single-digit returns. ELSS schemes can give double-digit returns."  

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On why people hesitate to invest in ELSS mutual funds despite this clear money-making opportunity, Sudheer said, "Most people hesitate to invest in ELSS schemes owing to the long-term capital gains tax of 10 per cent on gains over Rs 1 Lakh in a financial year. ELSS also doesn’t enjoy the EEE benefit like PPF where interest and withdrawals are tax-free. Yet, ELSS is a better tax-saver. ELSS Schemes have offered 15-17 per cent returns over a 5 year time horizon. This makes it more tax-efficient (Higher after-tax returns) compared to most tax-saving instruments."

Batting for the ELSS mutual funds ahead of small savings schemes and other tax-saving schemes, Kartik Jhaveri, Director — Wealth Management at Transcend Consultants said, "Any of the equity mutual fund schemes would give at least 12 per cent in long-term time-horizon. In my opinion, it's better to give income tax after bagging higher returns. ELSS doesn't fall in the EEE category like any of the small savings scheme, but it certainly gives income tax exemption on up to Rs 1.5 lakh investment in a year. Now, the kind of returns it gives in long-term is certainly around 50 per cent higher than any of the small savings schemes which are popular as tax saving schemes." He said that one needs to pay LTCG Tax on his or her income of over Rs 1 lakh in ELSS investment. So, even after one pays that LTCG Tax, his or her returns will be much higher than any of the small savings schemes' return.