ELSS and PPF: Understanding the difference

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Investors have multiple choices when it comes to investment options in India. But if you seek a tax-saving investment avenue, the pool of contenders is relatively limited. Two popular tax-saving investment schemes are ELSS mutual funds and PPF. Both these options have their unique features and benefits, making them suitable for different financial goals and risk appetites.

Let's understand the key differences between ELSS and PPF to help you make an informed decision.

  • Table of contents
  1. ELSS mutual fund: A brief overview
  2. Key points about ELSS
  3. PPF: A closer look
  4. Key points about PPF
  5. ELSS vs. PPF: Difference between ELSS and PPF
  6. FAQ

ELSS mutual fund: A brief overview

ELSS or Equity Linked Saving Scheme mutual funds are a type of diversified equity fund that offer tax benefits under Section 80C of the Income Tax Act. They primarily invest in equity and equity-related instruments, providing the potential for relatively higher returns over the long term. ELSS funds have a lock-in period of three years, which is shorter compared to other tax-saving instruments.

Key points about ELSS:

  • Tax benefits: ELSS offers tax deductions of up to Rs 1.5 lakh annually under Section 80C of the Income Tax Act,1961. While there is no upper limit to the amount that can be invested, only a maximum of Rs. 1.5 lakh is eligible for a tax deduction as per the IT Act, making it an attractive option for investors looking to save on taxes.
  • Equity exposure: ELSS funds invest a significant portion of their corpus in equities, which have historically demonstrated the potential for relatively better returns over the long term. While equity investments come with their share of risks, they also offer substantial long-term growth potential.
  • Lock-in period: The lock-in period for ELSS is three years, which is the shortest among all Section 80C investments offering tax savings.
  • Potential for returns: Due to their equity exposure, ELSS funds have the potential to offer reasonable returns compared to traditional fixed-income instruments.

PPF: A closer look

PPF (Public Provident Fund), on the other hand, is a government-backed savings scheme designed to encourage long-term savings for retirement. It offers a fixed, tax-free interest rate. PPF accounts have a maturity period of 15 years, making them a suitable option for individuals with long-term financial goals.

Key points about PPF:

  • Tax benefits: Investments made in PPF are eligible for tax deductions under Section 80C, similar to ELSS.
  • Fixed interest rate: PPF offers a fixed, tax-free interest rate, which is compounded annually. This rate is subject to periodic revisions by the government. The current interest rate for Q3 (October-December) FY 2023-24 for PPF accounts has been fixed at 7.1%.
  • Maturity period: The maturity period for a PPF account is 15 years, making it a long-term savings instrument.
  • Stability: PPF is a government-backed scheme, ensuring the stability of the invested capital.

ELSS vs. PPF: Difference between ELSS and PPF

Let’s analyze the differences between the two tax-saving investment schemes:

  • Investment strategy: ELSS primarily invests in equities, offering the potential for returns but with associated market risks. PPF, on the other hand, focuses on fixed-income instruments, providing more stability but a lower return potential.
  • Lock-in period: Many investors prefer high liquidity or the ability to convert their investments to cash quickly and effortlessly. But to claim the tax benefit under Section 80C, investors must remain invested in the eligible investment for a specific period. ELSS has a clear advantage here, as it has the lowest lock-in period of 3 years among all Section 80C investments. PPF, on the other hand, has a lock-in period of 15 years.
  • Return potential: Due to their equity exposure, ELSS funds have the potential to generate relatively higher returns over the long term whereas PPF offers a fixed, albeit tax-free, interest rate.
  • Risk: PPF is a good option for investors who are risk-averse and can afford to lock in their money for 15 years. On the other hand, investors willing to take some risk for potentially better returns can choose ELSS. The preferred way to reduce risk in ELSS is to stay invested for the long term.
  • Flexibility: ELSS provides more flexibility in terms of investment horizon, allowing investors to stay invested beyond the lock-in period. PPF, once matured, can only be extended in fixed blocks of five years.


So is ELSS better than PPF? Both ELSS and PPF serve as valuable tax-saving instruments with distinct features and benefits. The choice between the two depends on your risk tolerance, investment horizon, and financial goals. ELSS may be more suitable for investors seeking higher returns, while PPF offers relative stability and security for long-term savings. It's essential to assess your individual financial situation before making a decision. Always remember to consult a financial expert before making any investment decisions. Happy investing!


Can I withdraw my ELSS investments before the lock-in period?
ELSS has a lock-in period of 3 years, and premature withdrawal is not allowed. PPF, on the other hand, allows partial withdrawals after a certain period.

What key features distinguish ELSS and PPF?
ELSS is a market-linked mutual fund with the potential for relatively reasonable returns, while PPF is a fixed-income scheme with guaranteed returns and sovereign backing.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.