I am 24 years old and I just started working for an IT firm in Bangalore. I almost want to invest 90,000 this year to save taxes under Section 80c. What is the best option among between PPF and ELSS mutual funds and five-year fixed bank deposits? I do not have any investments to date - Anand K.

Investments made under the above-mentioned instruments are eligible for deduction under 80C. Let's discuss the pros and cons of each separately.

Let's start by analyzing the simplest instrument that is 5-year bank FD, although it is the simplest tool, it is also the most effective tool today, since interest rates are low with rates around 5.25% and there is a lock of 5 years, to add to this that the interest income received would be taxable every year. Hence it is better avoided

Then we come to the public welfare fund. PPF is a long-term investment scheme for people who want high but stable returns. Compared to FD, it provides excellent returns (current rates at 7.1%. vs 5.25 in FD). PPF investments fall under the EEE, which means that all deposits made in PPF are deductible under Section 80C of the Income Tax Act. Furthermore, the amount and the accrued interest are also exempt from tax at the time of withdrawal. This is a very good tool from a returns standpoint, but it has a 15-year lockdown which makes liquidity a disadvantage.

Finally, we come to ELSS, these instruments invest in equity markets, unlike the two instruments, the structure does not guarantee a fixed payout and is subject to market risk, and they also have less lock-in in a period of three years in comparison with other alternatives. Given your age, I recommend that you deposit your money in ELSS mutual funds. First, because you don't have equity and secondly because equity is a fantastic instrument for wealth creation in the long term. 

Since this is your first investment, it is important to note that equity can be very volatile in the short term, but in the long term, the volatility decreases dramatically.

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