Partner With Us NRI

Open Free Trading Account Online with ICICIDIRECT

Incur '0' Brokerage upto ₹500


5 Mins 07 Feb 2023 0 COMMENT


The most prudent investors have short-term, mid-term, and long-term financial goals. When it comes to long-term financial planning, you may look for investments that maximise your returns. In the short term, you may want to invest in a way that your tax liability reduces. Two investment instruments that can help you hit both these birds with one stone are PPF and ELSS. 

Public Provident Fund (PPF) and Equity-Linked Savings Schemes (ELSS) are tax-saving instruments that can help you generate wealth in the long run. You can invest in these instruments to claim a deduction of up to Rs 1,50,000 in a year, per Section 80C of the Income Tax Act. At the same time, the returns these investments generate can help you meet long-term goals like retirement, saving for a house, children’s education, or wealth creation. 

However, the question arises—which is better, ELSS or PPF?

Let’s explore the idea by understanding PPF vs ELSS better. 

What is PPF? 

PPF, or Public Provident Fund, is a voluntary retirement scheme backed by the government of India. It was introduced in 1968 to encourage individuals to make small contributions towards their retirement. It doubles as a tax-saver, offering investors deductions of up to Rs 1,50,000. 

Traditionally, PPF returns have been higher than fixed deposits; therefore, they provide inflation-beating returns. They are also considered relatively risk-free instruments because they are backed by the government.

Features of PPF

  • Guaranteed by the Central Government

PPF is a retirement investment scheme guaranteed by the government of India. This makes it a relatively low-risk instrument. 

  • Inflation-Beating Returns

Every quarter, the government of India announces the returns it will be providing on PPF that year. It depends on inflation rates and the market condition. It has been announced that the return on PPF for the first quarter of 2023 (Jan – March) will be 7.1%. 

  • Long Lock-In Period 

PPF has a lock-in period of 15 years. This means that once invested, you cannot withdraw the amount for 15 years. However, you have the option to make a premature withdrawal after five years, subject to certain conditions. 

  • Only One Account 

Any Indian resident can open a PPF account. Hindu Undivided Families and Non-Resident Indians cannot open a PPF account. Also, every individual can have only one PPF account. 

  • Minimum and Maximum Investment 

You need to invest a minimum of Rs 500 every year in a PPF account. The maximum investment amount is capped at Rs 1,50,000 per year. 

  • Taxation 

PPF is an exempt-exempt-exempt tax instrument, meaning you get tax exemption at investment, interest generation, and withdrawal or maturity. 

What is ELSS? 

ELSS or Equity-Linked Savings Scheme, is a form of mutual fund that has additional tax benefits. ELSS investments are eligible for tax deductions up to Rs 1,50,000 per year. These open-ended mutual funds must invest at least 85% of their corpus in equity instruments. Returns are market-linked. 

You can invest in ELSS through a lump sum or a SIP, just like other mutual funds. However, you have to remain invested for at least three years to enjoy the tax benefits. While ELSS is considered a high-risk investment, the possibility of returns is also higher because they invest predominantly in equities. 

Features of ELSS Mutual Funds

  • Diversification 

A majority of ELSS funds, i.e., at least 85%, are invested in equity instruments. The remaining are invested in debt instruments, money market securities, gold, etc. This makes ELSS a diversified investment instrument. 

  • Inflation-Beating Returns 

In the long run, ELSS funds provide inflation-beating returns, making them good long-term investments. However, since returns are market-linked, they are not guaranteed. 

  • Lock-In Period

ELSS has a lock-in period of three years, the lowest among all 80C investments. However, it is not compulsory to liquidate your investments after three years. You can stay invested to reap returns. 

  • Flexibility of Investment 

You can invest in ELSS through a lump sum investment or a SIP, depending on your convenience. 

  • Taxation 

Dividends from ELSS will be added to your income and taxed based on your tax slab. If you sell your ELSS investments, they will be taxed as equities. This means a long-term capital gains tax of 10% will be applicable for profits over Rs 1,00,000 in a year. 

Understanding PPF vs ELSS

To understand whether you should invest in PPF or ELSS, it is essential to know the difference between PPF and ELSS. Here’s a comparison: 


PPF (Public Provident Fund)

ELSS (Equity-Linked Savings Scheme)

Who can invest?

Everyone except HUFs and NRIs

Everyone can invest

Risk and return

Low-risk, because it is backed by the government of India; Returns between 7%-8%, as decided by the GoI

High-risk, because it invests in market instruments; returns depend on market performance

Lock-In Period

15 years

3 years

Premature Withdrawal

Allowed after 5 year

No premature withdrawals

Minimum/ maximum investment

Rs 500/ Rs 1,50,000 per year

Rs 500/ no upper limit, although only Rs 1,50,000 is eligible for tax deduction


EEE—investment, interest, and maturity amount are tax-free

Gains up to Rs 1,00,000 are
tax-free in a year. Above that, LTGC is applicable

Which is Better, ELSS or PPF

Looking at the returns, you may wonder if ELSS is better than PPF as an investment. What you need to look at while comparing ELSS mutual funds vs PPF is your own financial goals and risk appetite. 

If you are a high-risk investor who wants to make high returns, ELSS could be a good option. It also has a short lock-in period. However, if your risk appetite is low and you want stable returns, PPF may be a better choice. 

You could also choose to diversify your investment in both and get the best of both worlds. 

Final Word 

When comparing PPF vs ELSS as tax-saving instruments, there are many parameters that set the two investments apart. However, choosing between the two comes down to your own financial goals, investment horizon, and risk appetite. 


Why PPF is better than ELSS? 

It would be unfair to say PPF is better than ELSS. Which is better depends on individual financial goals, risk tolerance, and investment preferences. PPF, though, has some clear advantages over ELSS. For example, interest earned and withdrawals from PPF are tax-free. Also, they offer stable and guaranteed income. 

Is it better to invest in a PPF or a mutual fund? 

The answer to the question depends on the individual's risk profile and investment goal. If you want stable and guaranteed returns, PPF is a clear winner. If you can take risks and stay invested longer, mutual funds may offer higher returns even post-taxation.

Can I claim both ELSS and PPF? 

Yes, you can claim tax benefits for both ELSS and PPF investments under Section 80C of the Income Tax Act. All you need to know is that Section 80C allows you to claim deductions up to a maximum limit of Rs 1.5 lakh per financial year.

At what age should I invest in PPF? 

You can open a PPF account at any age - there is no minimum age limit for it.

Can I have 2 PPF accounts?

No, you cannot open two PPF accounts. This restriction ensures that the benefits of the PPF scheme, such as tax deductions and tax-free interest, are not misused.

Disclaimer: ICICI Securities Ltd. (I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. The contents herein above are solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments or any other product. Investments in securities market are subject to market risks, read all the related documents carefully before investing. Investors should consult their financial advisers whether the product is suitable for them before taking any decision. The contents herein mentioned are solely for informational and educational purpose.