Finn: “It’s January, already! Have you done your investment declaration and proof submission with the company?”

 Nancy: “Not yet. I still have about Rs. 1 Lakh left in my 80C bucket and am wondering whether to invest it ELSS or PPF.”

 Meme: “That does not make any sense. It’s like asking if a plant needs soil or sunshine to grow.”

Nancy: “What the hell are you talking about?”

Meme: “You need the stability of the soil to allow the plant to drop deep, solid roots, while you need sunshine to produce chlorophyll and make the plant grow leaves.”

 Nancy: “You are still not making any sense! What does that have to do with my question?”

 Finn: “I think I got it. Are you saying we need both PPF and ELSS in our portfolio?”

Meme: “Bingo! Just stick to your asset allocation of Equity vs Debt. Invest in ELSS within your equity allocation and in PPF within your debt allocation.”

Finn: “So PPF is like the soil, providing stability to the portfolio?”

 Meme: “PPF and other debt funds…, but yes right on!”

 Nancy: “And ELSS plus other equity mutual funds help the portfolio grow in the long term?”

 Meme: “You got it!”

 Finn: “Why do you mention other debt and equity mutual funds? Isn’t PPF and ELSS enough for tax saving?”

 Meme: “Focusing on tax savings when it comes to investments, is pretty much missing the wood for the trees!”

 Nancy: “What’s the big picture we are missing?”

 Meme: “Our parents’ generation had government-guaranteed, inflation-adjusted pension for life. Most of us in private sector jobs don’t have that benefit. We may have EPF or NPS, but we need to calculate how much money we need in retirement, or for our financial freedom. Chances are, the EPF and NPS that is forcibly deducted from our salaries is barely enough to meet our money requirements in old age. And the investments in PPF and ELSS we do based solely on incentives to save tax, will still not be enough. We need to calculate our money requirements when income stops and invest the rest in equity and debt mutual funds that can grow to a big enough corpus, from which we can withdraw our expenses in retirement.”

 Finn: “That makes sense. We need to invest based on how much we need in old age for our retirement, not based on how much tax we can save today!”

 Meme: “Also, having some money in equity and debt mutual funds gives us the liquidity to help rebalance across each other, without the restrictions of lock-ins that you have in ELSS and PPF.”

 Nancy: “Got it!”

Meme: “That’s pretty much it! Tax savings is just an incentive from the government to get you started with investing. It does not stop with paying a little less tax. Focus on growing your money plant for the long term.”

Finn: “…with Soil and Sunshine – in the right balance!”

 Meme: “There you go!”

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