Avinash : No Dude, My Father Does not Allow me to Invest in ELSS. He says he has always invested in PPF and it is the best.
Niraj : He is right Avinash. But we need to Move ahead with times. PPF was the best investment once upon a time. But now we have better options available.
Avinash : Can you please explain this ? I need to talk to my father regarding this.
Niraj : Till 1999, PPF interest rates were 12% p.a. If an instrument was giving you 12% returns, then obviously it becomes a no-brainer and one would invest in it. But From 1999 to 2020, the PPF interest rates have been falling. Now they are at 7.1%. Also, even if someone had invested Rs. 1 Lakh when the interest rates were 8%, this year they will receive interest of 7.1% only.
Avinash : Thats pretty shocking. But 7.1% is also somewhat good na. Bank FD is even lower than that.
Niraj : Absolutely right. Thats why I am not even recommending you Bank FD. The problem is, in future, PPF interests may further go down and we may even see interest rates of 5-6% on PPF.
Avinash : Oh My God !! That would be too low. Will talk to my father about this. But he is pretty against the equity markets. He says, they are risky.
Niraj : He is right. Equity markets are risky When,
1. You invest in them for short term
2. You invest in Stocks without research.
But in ELSS, there is a fund manager who chooses stocks after thorough research. Also, if you invest in ELSS for more than 15 years, the volatility is removed and you create more wealth than PPF.
Avinash : But in ELSS, the maturity is only 3 years.
Niraj : No. The lockin gets over in 3 years. But you can very well stay invested for 15 years (the way you stay invested in PPF for 15 years).
Avinash : This makes sense. I will talk to my father about this and tell him that he is wrong.
Niraj : He is not wrong Avinash. Its just that things have changed and he is not able to keep up with the new opportunities. He needs your help.
We look forward to your valuable comments and feedback.
The Author Prof. Saurabh Bajaj (BE, MBA, FRM, CFGP, AFGP) is CEO with Nidhi Investments, Mumbai. His articles have a readership from 78 Countries across the Globe. He may be contacted on CEO@nidhiinvestments.com if you have any questions.
(The views mentioned in the article are personal opinion of the author)
Disclaimer : Mutual Fund investments are subject to Market Risks. Please read offer documents carefully before investing.