Do you also struggle while saving tax?

So, let’s learn how to create wealth and save taxes!

Tax planning is a crucial part of financial planning and in India, people are generally attracted to tax-saving instruments such as post office saving schemes, PPF, NPS, etc. 

But are all tax-saving instruments delivering you inflation-beating returns?? Or you are just investing in these instruments to save taxes and earning minimal returns??

So let’s learn how to save taxes and earn inflation-beating returns,

Riddhi, Pooja, and Priya are best friends and one day they sat got into a discussion related to tax planning while discussing they discovered that each of them is investing in tax saving instruments but all 3 of them are investing in a different way. 

Riddhi is investing in Public Provident Fund (PPF) (has low risk appetite), Pooja is investing in Equity Linked Savings Scheme (ELSS) (has high risk appetite) and Priya is the smart who is diversifying her portfolio against both tax saving instruments i.e. ELSS as well as PPF (believes in spreading her risk).

First, let’s have a look at these investment instruments individually,

Equity Linked Savings Scheme (ELSS):

An equity-linked savings scheme or an ELSS fund is the only kind of mutual fund eligible for tax deductions under the provisions of Section 80C of the Income Tax Act, 1961.


  • Tax deductions of up to ₹1,50,000 a financial year under Section 80C
  • Lock-in period of 3 years
  • No provisions to make a premature exit
  • Minimum Investment: varies across fund houses
  • Maximum Investment: no upper capping
  • The portfolio of an ELSS fund primarily consists of equities (65% of the portfolio) as well as some exposure toward fixed-income securities.

Why are ELSS Mutual Funds the Best Tax-Saving Option?

  • The dual benefit of tax deductions and wealth creation over time
  • Option to invest a small amount every month (SIP)
  • Better returns than other tax-saving instruments
  • The shortest lock-in period of just 3 Years.
  • Delivers returns on an average 14-16%* (market linked returns)

*Is market linked returns. Mutual funds are subject to market risks

Can one invest in an ELSS fund through LXME?

Yes! If you want to start investing in the ELSS fund then you can invest through the LXME app. LXME offers Tax Saving Fund is a portfolio mix of ELSS funds, hand picked by our experts for tax saving purpose under the Income Tax Act. 

This portfolio is diversified, well-researched and curated by experts

Public Provident Fund (PPF):

Public Provident Fund (PPF) is one of the long-term investment scheme backed by Government.  It is also called as savings-cum-tax savings investment vehicle that enables one to build a retirement corpus while saving on annual taxes.


  • Tax deductions of up to ₹1,50,000 in a financial year under Section 80C of the Income Tax Act.
  • Lock-in period of 15 years
  • Has provision of premature withdrawal, you can withdraw up to 50% of the amount in your PPF Account after seven years, beginning from the end of the year you made your initial contribution.
  • Minimum investment required in a financial year is ₹500.
  • Maximum amount you can invest in PPF account is ₹1,50,000 in one financial year.
  • PPF offers 7.1% return (These returns gets revised periodically by Government)

Why PPF is one the most popular tax saving investment instrument?

PPF falls under the Exempt, Exempt, Exempt (EEE) regime. 

PPF is tax efficient investment instrument that offers tax benefits in all 3 stages of the investment process: investment stage, accumulation stage, and withdrawal stage.

So, now you might have got confused which investment instrument you should choose right? So, let’s have a look at Riddhi’s, Pooja’s and Priya’s investments after 15 years.

  • Riddhi is investing ₹1,500 every month in PPF @7.1% for 15 years
  • Pooja is investing ₹1,500 every month in ELSS @16%* (targeted return) for 15 years
  • And Priya is investing ₹1,050 every month in ELSS which is 70% of 1500 and ₹450 every month in PPF which is 30% of 1500

 So, let’s have look at what corpus they will accumulate at the end of 15 years in the form of graph:

*16% is targeted return offered by LXME Tax Saving Fund which is market linked 

As you can see in the above graph Riddhi was only able to accumulate ₹4,82,436 whereas, Pooja was able to accumulate ₹11,22,870 which is ₹6,40,434 ( ₹11,22,870-₹4,82,436) more than Riddhi.

Riddhi has lower risk appetite so she just invested in PPF while Pooja has higher risk appetite that’s why she invested all of her funds in ELSS. So, what was priya’s approach?

Priya’s approach was to spread risk across two asset classes and enjoy diversification, the power of compounding as well as the tax benefit. She was able to accumulate ₹9,30,740 (₹144,731 from PPF + ₹786,009 from ELSS) at the end of 15 years.

So, now we have seen the difference between two investment instruments. The best practice for investor will be to diversify the portfolio against different asset classes based on your risk appetite. This will deliver inflation-beating returns, ensure stability as well as will give you maximum tax benefit.

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