For tax-saving investments under Section 80C of the Income Tax Act, you may generally have to choose between two popular choices — Equity-Linked Saving Scheme (ELSS) and Public Provident Fund (PPF). Both have their advantages, but the better choice for you will depend on the level of associated risk you are comfortable taking, how long you want your investment to last, and what financial goals you have.
What is ELSS and PPF?
- ELSS (Equity-Linked Saving Scheme): An ELSS is a tax-saving mutual fund scheme that invests primarily in equities (stock market). An ELSS scheme also possesses a 3-year lock-in period, which is the shortest of all tax-saving instruments.
- Returns: Market-linked, typically range from 10–15% per annum (historical average)
- Risk: Moderate to high (depends on market performance)
- Tax benefit: Up to ₹1.5 lakh under Section 80C; LTCG above ₹1 lakh taxed at 10%
- PPF (Public Provident Fund): PPF is a government-backed long-term savings scheme with fixed tax-free interest. PPF lock-in period is 15 years, which may not be suitable for all investors. An investor looking for a conservative long-term investment may find it suitable.
- Returns: Fixed returns, currently 7.1%, revised quarterly.
- Risk: Almost zero (sovereign guarantee); default risk at home.
- Tax benefit: EEE (Exempt on the investment, interest, and maturity amount)
Key Difference at a Glance
| Feature | ELSS | PPF |
| Lock-in Period | 3 years | 15 years |
| Return Type | Market-linked (equity) | Fixed (govt-backed) |
| Historical Returns | 10–15% (not guaranteed) | 7–8% (fixed) |
| Liquidity | High after 3 years | Very low during 15 years |
| Liquidity | High after 3 years | Very low during 15 years |
| Investment Mode | Lump sum or SIP | Lump sum or monthly deposit |
| Suitable For | High-growth, risk-tolerant | Safe, long-term savers |
Who Should opt for ELSS?
- You want more long-term returns than ordinary debt instruments.
- You’re okay with the risks that come with the market in the short-term.
- You want a relatively short lock-in of 3 years.
- You have basic debt instruments (like EPF, PPF) in your portfolio and want to diversify into equities.
Example:
If you regularly invest ₹1.5 lakh in ELSS and get an average of 12% return every year for 15 years, at the end, your corpus will be more than ₹60 lakhs, which is very much greater than some nominal fixed-return instruments.
Also read: Top Passive Income Ideas for Retirees to Earn Money After Retirement
Who Should opt for PPF?
- They want guaranteed, risk-free returns.
- You are a conservative investor with a long-term savings, retirement corpus, etc.
- You are fine with investing for a full 15-year period (or longer).
- Tax-free interest income is your number one priority.
Example:
If you were to invest ₹1.5 lakh a year for 15 years, at 7.1% interest, you would have ₹40+ lakhs — the only difference is, you have guaranteed growth, safe if you are doing retirement planning.
Conclusion: Which Option is Better? Either option may work for you, but it’s based on you.
- Choose ELSS if you are young, you have a long investment horizon and you can withstand market-linked risks. ELSS may provide higher returns and offers liquidity after 3 years.
- Choose PPF if you would rather not take risks and want guaranteed capital growth with full tax- free. It is a good safety net for conservative retirement planning.
Insider information: One way to achieve stability from PPF and growth from ELSS is to invest in both each year. This allows you to reduce your risk while maximizing tax savings.
Written by Pranjal Data
