ELSS vs PPF Compare Which Is Better



With the majority of investment options available, we will discuss two popular options: Equity Linked Savings Schemes (ELSS) and the Public Provident Fund (PPF). Each possesses unique characteristics that cater to distinct investor preferences and financial goals. This blog aims to shed light on the key differentiators between ELSS vs PPF, helping investors make informed decisions based on their risk tolerance, financial objectives, and investment horizon.

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Understanding The Basics

Equity Linked Savings Schemes (ELSS) are a category of mutual funds that primarily invest in equities.
Known for their potential for high returns, ELSS funds come with a lock-in period and offer tax benefits under Section 80C of the Income Tax Act.

Savings Schemes Equity Linked

Key Features:

  • Equity Exposure: ELSS funds allocate a significant portion of their portfolio to equities, providing investors with the opportunity to participate in the potential growth of the stock market.
  • Lock-in Period: ELSS comes with a mandatory lock-in period of three years, ensuring that investors commit to a medium-term investment horizon.
  • Tax Benefits: Investments in ELSS qualify for tax deductions up to Rs. 1.5 lakh under Section 80C, making them an attractive option for tax-conscious investors.
  • Potential for High Returns: Due to their equity-oriented nature, ELSS funds have the potential to deliver higher returns compared to traditional fixed-income instruments.

What is PPF?

Additionally, the PPF allows for partial withdrawals after a certain period of time, making it a flexible option for those who may need access to their savings. Moreover, the scheme also provides tax benefits, making it an attractive choice for those looking to save for the long term.

Public Provident Fund

Key Features:

  • Government Backing: PPF is a government-backed savings option, ensuring a high level of safety and reliability.
  • Fixed Interest Rate: The interest rate on PPF is set by the government and is compounded annually. The current rate is subject to periodic revisions.
  • Lock-in Period: PPF has a fixed lock-in period of 15 years, providing a disciplined approach to long-term savings.
  • Tax Benefits: Contributions to PPF are eligible for tax deductions under Section 80C, making it a favoured choice for tax planning.
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ELSS vs PPF A Comparative Overview:

While both contribute to your financial security, they cater to different risk appetites and return expectations.

The table given below highlights the important differences between ELSS vs PPF:

Feature ELSS (Equity Linked Savings Scheme) PPF (Public Provident Fund)
Investment Type Equity Mutual Fund Debt Scheme
Eligibility All Indian citizens All Indian citizens (except Hindu Undivided Families)
Minimum Investment ₹500 per financial year ₹500 per year
Maximum Investment ₹1.5 lakh per financial year under Section 80C ₹1.5 lakh per year
Returns Potentially high but market-linked Guaranteed fixed rate, currently 7.10%
Tax Benefits Investment of up to ₹1.5 lakh is tax deductible under Section 80C, capital gains up to ₹1 lakh tax-free, above ₹1 lakh taxed at 10% Entire investment and earned interest tax-free
Lock-in Period 3 years 15 years
Premature Withdrawal Not allowed during the lock-in period, partial withdrawals are allowed after 5 years with a penalty Not allowed except in specific cases like terminal illness of self or spouse
Liquidity Can be redeemed after the lock-in period Limited liquidity until maturity
Risk High Low
Suitability For investors with high-risk tolerance and long-term investment horizon For risk-averse investors seeking guaranteed returns and tax benefits

ELSS empowers you to tap into the potentially high returns of the equity market but with inherent volatility. PPF provides peace of mind with its guaranteed, albeit lower, returns and tax-free benefits.

Carefully, in addition, assess your risk tolerance, investment horizon, and financial goals to make an informed decision.

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Choosing The Right Option

First, it’s important to compare the lock-in periods of both options. Additionally, you should also consider the tax benefits offered by each scheme. Furthermore, the historical returns of ELSS and PPF should be taken into account. In addition, the liquidity and flexibility of each investment should be weighed. Lastly, the risk factor associated with both options should also be considered.

Right Option Choosing

1. Risk Tolerance:

ELSS: Suitable for those with a higher risk tolerance due to its equity exposure and market-dependent returns.
PPF: Ideal for conservative investors who prioritise stability and can accept lower, but more predictable, returns.

2. Investment Horizon:

ELSS: Suited for a medium to long-term investment horizon, as the three-year lock-in period allows for potential market fluctuations.
PPF: Geared towards individuals with a long-term perspective, aligning with its 15-year lock-in period.

3. Tax Implications:

ELSS: Offers tax benefits on investments up to Rs. 1.5 lakh under Section 80C, but returns are subject to capital gains tax.
PPF: Additionally, it offers the advantage of tax exemptions on contributions and interest earned, making it a tax-efficient savings option.

4. Flexibility and Liquidity:

ELSS: Additionally, it offers the flexibility to switch between funds and liquidity after the three-year lock-in period.
PPF: Offers loan facilities and partial withdrawals after the 7th year, but overall, it is less flexible compared to ELSS.

5. Financial Goals:

ELSS: Suited for individuals aiming for higher capital appreciation and will withstand market volatility.
PPF: Additionally, ideal for those with long-term financial goals like retirement planning, housing, and education.

6. Government Backing:

ELSS: Operates as mutual funds and does not have direct government backing. Returns are subject to market performance.
PPF: Backed by the government, ensuring a high level of safety and reliability.

7. Liquidity Needs:

ELSS: Offers liquidity after the three-year lock-in, making it more suitable for those with potential short-term liquidity needs.
PPF: Additionally, better for long-term savers, as the 15-year lock-in period encourages disciplined savings.

8. Contribution Amount:

ELSS: No fixed contribution amount; moreover, investors can choose the amount based on their financial capacity.
PPF: Allows contributions ranging from a minimum of Rs. 500 to a maximum of Rs. 1.5 lakh annually.

9. Market Exposure:

ELSS: Additionally, provides exposure to equities, making it more sensitive to market fluctuations.
PPF: Primarily invests in fixed-income securities, offering a more stable but conservative investment avenue.

10. Portfolio Diversification:

ELSS: Furthermore, offers diversification within equity markets, contributing to a well-rounded investment portfolio.
PPF: Add stability to a portfolio with a fixed-income component but may lack the diversification benefits of equities.


Ultimately, the choice boils down to individual preferences, risk appetite, and financial goals. Investors need to align their choices with their financial objectives, considering factors such as risk tolerance, investment horizon, and the need for liquidity.

Additionally, by providing expertise and guidance, a financial advisor can assist in making informed choices. Furthermore, they can offer insights that may not have been considered otherwise. In conclusion, working with a financial advisor can ultimately lead to more effective and strategic investment decisions.

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Frequently Asked Questions?

Q. How do ELSS and PPF differ in terms of their investment nature?
ELSS invests in equities, offering the potential for higher returns with higher risk, while PPF is a fixed-income instrument, providing stable but lower returns.

Q. What are the primary objectives of investing in ELSS and PPF?
ELSS aims for wealth creation through equity investments, while PPF focuses on long-term savings, providing financial stability and security.

Q. How do the tax benefits of ELSS vs PPF compare?
ELSS offers tax benefits under Section 80C, with returns subject to capital gains tax, while PPF provides tax exemptions on contributions and interest earned.

Q. What is the lock-in period for ELSS and PPF?
A. ELSS has a three-year lock-in period, promoting medium-term commitments, whereas PPF comes with a 15-year lock-in period, encouraging long-term savings.

Q. What are the investment returns or potential yields of ELSS vs PPF?
A. ELSS potentially offers higher returns with market-dependent yields, while PPF provides stable but comparatively lower returns with fixed interest rates.

Q. Can I invest in both ELSS and PPF simultaneously?
A. Yes, you can diversify your investment portfolio by simultaneously investing in both ELSS and PPF based on your financial goals and risk tolerance.

Q. Which investment option, ELSS or PPF, is more suitable for long-term financial goals?
A. Both are suitable, but ELSS may be preferred for its potential higher returns over the long term, while PPF offers stability and security for conservative investors.