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ELSS vs PPF – Comparison of ELSS Funds with Public Provident Fund

Updated on: Dec 30th, 2022


8 min read

The Government of India will pay the employer and employee contribution to EPF account of employees for another three months from June to August 2020. The benefit is for establishments with up to 100 employees and where 90% of those employees draw a salary of less than Rs 15,000 per month. The contribution to EPF is reduced to 10% from 12% for non-government organisations.

Taxes take away a substantial amount of your income. As an investor, you must invest in the best tax-efficient investment available. This article covers the following:

How ELSS and FD works under 80C?

It takes proper financial planning on your part to make your savings more meaningful by investing in those schemes that provide you with the best results. The government encourages individuals and households to invest and secure their financial futures by giving tax deductions under Section 80C of the Income Tax Act, 1961. ELSS and FD are two of the several 80C investments you can make use of as a taxpayer.

This way, you can deduct up to Rs.1.5 lakh from your taxable income and claim exemptions accordingly. Both the investment options come with its set of pros and cons and cater to investors of different investment profiles. ELSS vs PPF is a familiar debate in the investment world and let us explore that in detail here.

What is an Equity Linked Savings Scheme?

ELSS is the only kind of mutual funds covered under Section 80C of the Income Tax Act, 1961. ELSS funds have the shortest lock-in period among all Section 80C options. Nevertheless, it offers better scope for long-term wealth creation, people with more risk tolerance favour it.

A significant portion of the investment in ELSS goes towards equity investments, and the performance is market-linked. Hence, the returns are subject to market volatility. It has proved to be rewarding in the long run. The best ELSS funds have delivered far better returns than conventional instruments such as PPF and FD.  

Things to know about ELSS

  • Contributions of up to Rs.1,50,000 a year are tax-exempt under the Section 80C of the Income Tax Act, 1961.
  • It is one of the best investment options that offer tax benefits with potentially higher returns and a much shorter lock-in period.
  • The return on ELSS is not tax-exempt anymore as per the Budget 2018 guidelines. 10% LTCG tax is applicable if the gains exceed Rs.1 lakh a year.
  • You can continue to invest in this scheme even after the completion of the lock-in period of three years.
  • The risk involved with ELSS is higher when compared to a fixed deposit or a PPF, but the returns are potentially more elevated as well.

What is a Public Provident Fund?

The Government of India introduced PPF to encourage people to save and make provisions for old age. The scheme is available for all the citizens of India except NRIs. You may also open a joint PPF account for a minor as well with the parent or legal guardian.

Things to know about PPF

  1. You can claim deductions up to Rs.1,50,000 a year under Section 80C of the Income Tax Act, 1961, for the investments that you make towards your Public Provident Fund account.
  2. You can nominate someone in your PPF account and in case of no nominations, the legal heirs get the amount in the accumulated in the account on the event of the demise of the account holder.
  3. The current interest rate for PPF is 7.1% p.a.
  4. There can be only one PPF account in your name (including joint accounts).
  5. You can choose to contribute to your PPF account either in 12 instalments or a lump-sum annually.
  6. There is a provision to make partial withdrawals from your PPF account from the 6th year. However, you get the entire corpus only after the maturity period of 15 years.
  7. PPF is a risk-free investment, backed by the Government of India.
  8. There is a minimum investment amount for a PPF account, which is a sum of Rs.500. The maximum amount for depositing in a PPF in a year is Rs.1,50,000.
  9. The mandatory lock-in period for a PPF account is 15 years. However, you can extend this for another five years after the lock-in period.
  10. The interest that you receive on the amount at the time of maturity is entirely tax-free.


Both PPF and ELSS offer excellent tax saving options. Moreover, as an investor, it is for you to decide which one to use or to invest in both. Start with your investment objectives. Contemplate how much risk you are willing to take on your investment, investment horizon, and the investment amount. 

One crucial point to consider would be the premature withdrawal option. While PPF does allow for 50% withdrawal of funds post the five year lock-in period, ELSS doesn’t allow partial withdrawals in between. You have to wait until you complete the lock-in period of three years. So, weigh in the rates of interest aspect as well as the time horizon factor before you decide.

Here is a quick overview of the pros and cons of investing in ELSS vs PPF:

ParticularsPPF (Public Provident Fund)ELSS (Equity-Linked Savings Scheme)
What is the risk involved?As a Government of India initiative, PPF investments are safe.Being an equity fund, the investments are subject to market risks.
What returns can I expect?The Government declares the rate of interest for PPF investments every year. It is usually between 7% and 8% p.a.Being market-linked, the returns can vary depending on the scheme selected. But an investor can expect 12%-14%  returns approximately. 
What are the tax benefits?EEE (Exempt Exempt Exempt) – The invested amount is exempt from taxes at the time of investment, accumulation, and withdrawal.There is a 10% LTCG tax applicable if your returns are over and above 1 lakh after holding period of 1 year.
Lock-in periodYes, a lock-in period of 15 years applies. (After the 5th year partial withdrawals are permitted)ELSS investments have a lock-in period of 3 years. However, there is no possibility of premature withdrawal.
Time limit for investment?You cannot invest for more than 15 years. However, you can extend to 5 more years. ELSS investments have no upper time limits.
How much can I invest?You can invest anything between ₹500 and ₹150,000 in a financial year, either in a lump sum or in 12 installments.You can invest as much as you want. However, under Section 80C of the Income Tax Act, only ₹150,000 in a financial year is deductable.

From the table above, you can see that a PPF investment is a relatively safer option. However, PPF offers much lower returns over a longer time horizon than ELSS. The tax benefits and capital safety are more in favour of PPF; ELSS certainly is an option for better returns. It depends on whether you have the appetite for market volatility or not.  

How to invest in ELSS and PPF?

ELSS is just a mutual fund that happens to get deduction u/s 80C for the investments made. There are multiple AMCs that offer ELSS schemes. Whereas PPF is offered by banks, so you can even sign-up for a PPF account with the same bank where you have your savings account.

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