ELSS and PPF are two popular high-return, tax-saving investment instruments. Read on to know how ELSS compares to PPF and which is a more suitable investment scheme for you.

Planning for your long-term wealth creation goals not only involves decisions about investments that offer the highest returns, subject to your risk appetite. These financial plans must also account for tax implications.

Equity Linked Savings Schemes (ELSS) and Public Provident Fund (PPF) are two such tax-saving investment options that offer high returns. Investors can avail of tax deductions of up to Rs 1,50,000 under section 80C of the IT Act by either investing in ELSS or PPF.

But what is the difference between ELSS and PPF schemes, and which scheme should you prefer investing in? Let’s understand.

What is ELSS?

ELSS is a mutual fund scheme, which primarily invests in equity instruments to generate high returns (beating inflation). The dual benefits of ELSS investments include wealth accumulation and tax savings. Indeed, investors can save up to Rs. 46,800 p.a. in taxes every year.

Further, ELSS investments have a lock-in period of 3 years—the shortest among all the eligible 80C investment alternatives. While ELSS returns are market-linked, they can go up to 2x the returns offered by an FD or PPF, particularly when the market conditions are favourable.

ELSS funds can either be close-ended or open-ended. For close-ended ELSS funds, investments can only be made through a broker at the time of a new fund offer (NFO). For open-ended ELSS funds, units can be directly traded in through the asset management company (AMC).

You can invest in ELSS funds either through lumpsum or SIPs of as little as Rs. 100 per month.

There is no cap on the maximum amount that can be invested in ELSS. However, a 10% LTCG tax will be deducted on gains made in excess of Rs. 1 lakh per year.

Read More About What is ELSS Mutual Fund?

What is PPF?

Launched in 1968 by the National Savings Institute, PPF is a government-backed long-term savings scheme, targeted at individuals making small savings. Like ELSS, individuals can claim tax deductions of up to Rs. 1.5 lakhs under section 80C of the Income Tax Act by investing in a PPF account.

Any Indian citizen (barring NRIs) can invest in a PPF account. However, their investment will be subject to a longer lock-in period of 15 years, with an option to extend it for 5 more years. Some of the benefits of PPF include an option to withdraw your investment prematurely after the 5th year and the facility to avail of a loan against your PPF account. A maximum of 25% of the preceding 2 years’ outstanding amount is sanctioned, which needs to be repaid within 36 months.

Investments in PPF are subject to a cap and floor of Rs. 1,50,000 and Rs. 500, respectively, which can be invested either as lump sum or through 12 monthly instalments. Individuals are limited to only one PPF account in their name, with an option to nominate heirs. The interest income earned on PPF accounts is fully tax-free.

Difference Between ELSS and PPF

Below we elaborate on how the ELSS scheme compares to the PPF scheme.

ELSS vs PPF: Tax

PPF falls under the category of Exempt-Exempt-Exempt. This means you not only get a tax deduction of Rs. 1.5 lakhs every year, but the final proceeds, including the interest, received on maturity are fully tax-exempt. This is unlike ELSS, where any gains beyond Rs. 1 lakh are taxable at 10%. 

ELSS vs PPF: Returns

Presently, a PPF investment generates a return of 7.1% compounded annually. These rates are announced by the government every quarter. On the other hand, returns on the ELSS scheme will vary as per the market conditions and investment mandate. Some of the popular ELSS schemes are known to generate returns of 12% or more.

ELSS vs PPF: Risk

An ELSS fund is exposed to company and market risks, thereby attracting investors with a moderate risk appetite. Whereas, a PPF investment carries lower risk since the government guarantees the capital amount. Thus, a PPF investment is a better alternative for risk-averse investors. 

ELSS vs PPF: Lock-in Period

An investment in PPF is locked in for 15 years, extendable by another 5 years. For ELSS, the lock-in period lasts only 3 years, with an option to continue to invest in the scheme for a longer duration.

ELSS vs PPF: Premature Withdrawal

Unlike PPF, where individuals can partially withdraw up to 50% of the outstanding amount after 5 years of investment, investors cannot withdraw any funds before the completion of 3 years in an ELSS scheme.

ELSS vs PPF: Investment Caps

Individuals can invest only up to Rs. 1.5 lakhs in a PPF account annually. Whereas, there are no restrictions on amounts invested in an ELSS scheme. However, tax deductions will only be offered on Rs. 1.5 lakh invested per year.

ELSS vs PPF: Loan Facility

A PPF account holder can avail of a loan against his investment, limited to 25% of the outstanding amount available at the end of the previous 2 financial years. However, this facility is only available after the 3rd year of investment until the 6th year. Further, this loan will be sanctioned at a 1% markup on current interest rates. For instance, with the current interest rate at 7.1%, a loan can be availed at 8.1% (7.1 + 1).

This loan needs to be repaid within 36 months of sanction, either as lumpsum or as monthly instalments. In case of partial repayment, the markup will be raised from 1% to 6%. Individuals are limited to only one loan each year. ELSS grants no such loan facility to its investors.


Both ELSS and PPF are brilliant tax-saving options, albeit targeted at a different set of investors. While ELSS may be riskier than PPF, its elevated returns justify the higher risk. Your final decision should rest on what are your investment goals, risk appetite, time horizon, and whether you are averse to long lock-in periods.

Related Calculators


What is ELSS?

ELSS (Equity Linked Savings Scheme) is a mutual fund scheme that primarily invests in equity instruments, offering high returns and tax savings under Section 80C of the IT Act.

What is PPF?

PPF (Public Provident Fund) is a government-backed long-term savings scheme aimed at individuals making small savings, offering tax deductions under Section 80C of the IT Act.

What is the lock-in period for ELSS and PPF?

ELSS has a lock-in period of 3 years, while PPF has a lock-in period of 15 years, extendable by another 5 years.

How are ELSS and PPF taxed?

ELSS gains above Rs. 1 lakh are taxed at 10% LTCG. PPF falls under the Exempt-Exempt-Exempt category, meaning investments, interest, and maturity proceeds are all tax-exempt.

What returns can I expect from ELSS and PPF?

ELSS returns are market-linked and can be around 12% or more, while PPF currently offers a 7.1% annual return, compounded yearly.

Who should invest in ELSS and PPF?

ELSS is suitable for investors with a moderate risk appetite looking for high returns. PPF is better for risk-averse investors seeking a safe, government-backed investment.

Can I withdraw funds prematurely from ELSS and PPF?

ELSS does not allow premature withdrawal before 3 years. PPF allows partial withdrawals up to 50% of the outstanding amount after 5 years.

What are the investment limits for ELSS and PPF?

PPF has a minimum investment of Rs. 500 and a maximum of Rs. 1.5 lakhs annually. ELSS has no maximum investment limit, but tax deductions apply only to Rs. 1.5 lakhs per year.

Can I take a loan against my ELSS or PPF investment?

Loans are not available against ELSS investments. PPF account holders can avail of a loan up to 25% of the outstanding amount from the 3rd to the 6th year, repayable within 36 months.

Which is better: ELSS or PPF?

It depends on your investment goals, risk appetite, time horizon, and tolerance for lock-in periods. ELSS offers higher returns with more risk, while PPF provides safety and tax-free returns.