Home >money >personal-finance >ELSS funds gives superior returns compared to PPF

My annual salary is 5.5 lakh. I pay a premium of 3,000 per month for my LIC policy. I want to invest to save tax under Section 80C and for retirement. I want to invest 8,000 per month. Should I invest in equity-linked savings scheme (ELSS), or traditional instruments like Public Provident Fund (PPF) and FD? My investment horizon is 30 years. What is the average return I can expect? Is there any chance of getting negative returns in the long term?

—Biplab Mridha

With 3,000 per month for LIC premium and 8,000 per month for ELSS, you will have 1.32 lakh covered under Section 80C for tax-saving. I do not know your EPF contribution, but it is likely to cover the 1.5 lakh limit under Section 80C. Among tax-saving options, without doubt, ELSS is a superior returning option with a shorter lock-in compared with PPF. Also, it is far more tax-efficient than a tax-saving FD. You should consider ELSS for your discretionary tax-saving investments as the traditional option of EPF would anyway be covered. For investment choices, you can consider two funds with 4,000 each. ICICI Prudential Long-term Equity Fund and Invesco India Tax Plan are good choices. You don’t need too many tax-saving funds. You can continue adding investments to this small portfolio of funds every year going forward, and they will help save tax and create wealth.

I am 22 and in my first job now. I am not okay with very high risk. I want to have enough money for my lifestyle expenses. I am left with 13,000 after paying all my bills. Please recommend some investment options.

—Sowmya Naidu

It is fine to be risk averse when starting on one’s investment journey. When you slowly build up on your risk appetite with investments, you have a better chance of remaining invested over the long term. However, I hope you are willing to save for the lifestyle expenses you mentioned and spend after you have accumulated enough. That would be the prudent way to go about planning for your expenses.

You can start an SIP in a small portfolio of relatively low-risk funds that have some market exposure to give you decent returns. Funds such as Franklin India Debt Hybrid fund and HDFC Hybrid debt fund would be good choices. These funds require a 2-3-year holding period to reap full benefits.

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Srikanth Meenakshi is co-founder and chief operating officer, FundsIndia.com. Queries and views at mintmoney@livemint.com

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