The Union Budget has increased the Sec 80C limit for tax saving investments by Rs.50,000 to Rs.150,000. Most distributors would love to pitch ELSS funds as the best alternative for this incremental 50k. A strong contender for this incremental 50k is PPF, which has seen a simultaneous hike in investment limit, and which continues to attract retail interest. Hari Kamat , one of Goa's most successful IFAs, did some number crunching with his client's actual PPF data to showcase exactly why ELSS is far better than PPF. This proved to be an eye-opener not just for that client, but for many more clients that he has since shown this data to, and to clients of other Goa based distributors whom Hari Kamat forwarded it to. For the benefit of the wider IFA fraternity, Hari Kamat is now sharing this data and his insights on Wealth Forum. Use this, and get every single tax paying retail investor to commit the incremental 50k into ELSS funds.

All of us are interested in showcasing ELSS funds as a superior alternative to PPF. Apart from the fact that it gives us some business, we know that ELSS funds have the potential to create much more wealth for investors than PPF can, over a typical 15 year duration of a PPF account. The challenge is that many investors prefer the safety and guaranteed returns of PPF over volatility and uncertainty of stock markets.

There is now a huge opportunity in front of us to intermediate on an additional Rs.50,000 that every tax paying retail investor will invest in some 80C avenue during the rest of this financial year, now that the 80C limit has gone up in this Budget.

During a conversation with one of my clients, who is an avid PPF investor, I decided to do some number crunching, which served as an eye-opener for him. I have now started using this data with all my clients, and it is having a very good effect in terms of getting clients to appreciate ELSS and at least commit the additional Rs.50,000 towards ELSS funds. Yesterday, I shared this with one of my distributor friends in Goa and he called me in the evening saying he has already got 3 conversions based on this data. I thought this will be useful to all of our IFA friends and hence am sharing it with you on Wealth Forum.

Comparison of PPF and ELSS based on actual client data

In the table below, the first set of columns is an exact replica of the PPF pass book of my client. Adjacent to this, I have put in what the same amounts would have done for him, if he had invested the same amount on the same days into an ELSS fund. For this, I chose the HDFC Tax Saver Fund for this comparison.

Here are some of the points I highlight from this table :

1. The same Rs.12.66 lakhs invested in ELSS grew 4 times more than what the PPF corpus grew, over this 16 year period.

2. In the quest of not losing money, which led the investor to park money in PPF, he has actually lost Rs. 60 lakhs of additional gain that he would have got in ELSS

3. At no point in the last 10 years, when the market has gone through all its gyrations, has the ELSS corpus been less than the PPF corpus.

4. Even in March 2009, when the Sensex was at its lowest at 9000 levels, the ELSS corpus was more than twice the value of the PPF corpus.

5. Even now, if the market were again to drop 50% like it did in 2008-09 (which nobody believes it will), the ELSS corpus would still be higher than the PPF corpus, even after a 50% drop.

6. Apart from the returns aspect is the liquidity aspect. ELSS gives you liquidity after 3 years while PPF remains relatively illiquid for 15 years.

When I discuss this live data with my clients, I say only one thing. You may have made certain commitments (insurance etc) for the 100,000 limit. You may want to still put in some amount into PPF, like you have been doing all these years. But one sensible decision that you must take is the additional Rs.50,000 that you need to now invest under 80C, must only go towards an ELSS fund. Clients find this logic compelling and I am getting clients to open SIPs of Rs.4000 and 5000 per month in ELSS funds on this basis.

A simple idea for all my IFA friends is this : take up a project to get every single tax paying retail client of yours to commit the incremental Rs.50,000 that he can now invest under 80C, into an ELSS fund, by showcasing this data. There is a good business opportunity for you right now, and you will be doing the right thing for your clients as well. Go out, and make the most of this new 50k opportunity.

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