Is PPF better than ELSS?

Investment options are plentiful in the Indian financial market. Two instruments that have garnered immense popularity among tax-savers are the Public Provident Fund (PPF) and the Equity-Linked Savings Scheme (ELSS). Both offer tax benefits under Section 80C of the Income Tax Act, but they cater to different risk profiles and offer varied returns. So, which is better – PPF or ELSS? Let's delve deep into both to answer this pressing question.

Public Provident Fund (PPF)

Overview: PPF is a government-backed, long-term savings-cum-tax-saving instrument. It is favored for its security, predictable returns, and tax advantages.


  1. Duration: PPF has a tenure of 15 years, extendable in blocks of 5 years.
  2. Interest Rate: Set by the government, reviewed quarterly. Traditionally, PPF offers a moderate interest rate, higher than regular savings accounts.
  3. Minimum and Maximum Investment: Annually, you can invest as little as INR 500 to a maximum of INR 1.5 lakh in PPF.
  4. Taxation: The PPF follows the EEE (Exempt-Exempt-Exempt) model. This means the investment amount, interest earned, and maturity amount are all exempt from tax.


  • Guaranteed and Tax-Free Returns: Your capital is safe, and the returns, though not very high, are assured and exempt from tax.
  • Loan Facility: From the third to the sixth year, one can avail a loan against their PPF balance.
  • Withdrawal: Partial withdrawal is possible from the seventh year onwards.

Equity-Linked Savings Scheme (ELSS)

Overview: ELSS is a type of diversified equity mutual fund. It provides the dual advantage of potential high returns due to equity exposure and tax benefits.


  1. Duration: ELSS funds come with a mandatory lock-in period of 3 years.
  2. Returns: Unlike PPF's fixed returns, ELSS offers market-linked returns. This means they have the potential for higher gains, but with increased volatility.
  3. Minimum Investment: You can start investing in ELSS with as little as INR 500.
  4. Taxation: ELSS also follows the EEE model, making it tax-efficient. However, if your returns exceed INR 1 lakh in a year, you're liable to pay a Long Term Capital Gains (LTCG) tax of 10%.


  • Potentially Higher Returns: Due to exposure to equities, ELSS has the potential for significantly higher returns compared to PPF.
  • Shorter Lock-in Period: With just a 3-year lock-in, ELSS offers more liquidity than PPF.

Comparing PPF and ELSS

  1. Risk: PPF is virtually risk-free, being backed by the government. ELSS, being equity-oriented, carries market risks but offers potentially higher rewards.
  2. Returns: Historically, equity has outperformed other asset classes over the long term. So, while ELSS can offer superior returns, they aren't guaranteed. PPF provides steady but moderate returns.
  3. Liquidity: ELSS offers better liquidity due to its shorter lock-in period.
  4. Tax Efficiency: Both offer excellent tax-saving benefits, but ELSS may attract LTCG tax if returns exceed a threshold.

Which One Should You Choose?

Your choice between PPF and ELSS should be based on:

  • Risk Appetite: If you're risk-averse, PPF is your go-to. If you're open to taking some risk for potentially higher returns, consider ELSS.
  • Investment Horizon: For longer horizons, having a mix of both might be beneficial. PPF ensures a portion of your capital remains secure, while ELSS can provide the boost of equities.
  • Financial Goals: If you're aiming for steady wealth accumulation, PPF is apt. For aggressive growth, tilt towards ELSS.


Both PPF and ELSS have their merits and cater to different investment needs. Instead of viewing them as either-or options, consider them as tools in your investment toolkit. Depending on your goals, risk appetite, and horizon, you might find one more appealing than the other, or you might opt for a combination of both. After all, successful investing isn’t about choosing the 'best' instrument, but the most appropriate one.

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