5paisa Research Team Date: 28 Dec, 2023 03:23 PM IST


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Individuals seeking long-term savings or investments should explore schemes that not only provide substantial returns but also offer tax benefits. In this regard, both the private and public financial sectors provide various plans for investors to consider.

Two notable schemes in this context are the Equity Linked Savings Scheme (ELSS) and the Public Provident Fund (PPF). These schemes not only yield high returns but also come with income tax benefits. They are well-suited for individuals aiming to maximize their savings through wealth appreciation and cultivate a disciplined savings habit.
The following points highlight the difference between ELSS and PPF, aiding individuals in choosing the right product or potentially opting for both.

What is ELSS?

Investors seek opportunities to build wealth, receive consistent returns, and potentially save on taxes. Although there are various investment schemes in the market, many of them come with returns subject to taxation as per Income Tax regulations. This is where ELSS funds come into play. Equity Linked Savings Schemes, or ELSS mutual funds, are tax-saving equity mutual funds.

What is PPF?

Between ELSS Vs PPF, the importance of PPF, or Public Provident Fund, can be precisely described as a long-term investment scheme favoured by individuals seeking steady and elevated returns. Preserving the principal amount securely is the primary objective for those initiating a PPF account. Upon opening a PPF scheme, an account is allocated to the applicant, facilitating monthly deposits and compounding interest.

Difference Between ELSS Vs PPF

Here’s a comparison between ELSS Vs PPF:

Criteria ELSS PPF
Type of Investment It is an equity-oriented mutual fund scheme It is a fixed-income investment scheme
Risk and Returns It has a higher risk and potential for higher returns It has lower risk and stable but lower returns
Lock-in Period It has a 3 years lock-in-period It has a 15-year lock-in-period
Tax Benefits It offers Section 80C tax deductions up to Rs. 1.5 lakh It offers Section 80C tax deductions up to Rs. 1.5 lakh
Mode of Investment You can invest through SIP (Systematic Investment Plan) or lump sum You can invest through Lump sum or yearly contributions
Nature of Returns It is market-linked and subject to market volatility It has a fixed interest rate and predictable returns
Withdrawals and Liquidity You can redeem units anytime after the lock-in period Partial withdrawals are allowed after the 7th year
Interest Rate No fixed interest rate depends on market performance Fixed interest rate declared by the government
Purpose of Investment Long-term wealth creation and tax savings Long-term savings with tax benefits

Things to know about PPF

Safe Investments: Opting for PPF ensures relief from the uncertainties of investment risks. PPF, being a government-backed scheme, features an interest rate that is determined and paid by the government of India. This government guarantee establishes PPF as a secure investment choice for all Indian citizens.

Guaranteed Returns: As PPF is a government-backed initiative, the returns on investment are assured, though not unchanging. The government determines the interest rate for PPF every quarter. Historical data indicates a decline in PPF interest rates from 12% to the current 7.1%. Presently, the PPF interest rate is set at 7.1% for the second quarter of the fiscal year 2022-23 (July-September).  

PPF Lock-in Period: PPF is primarily suitable for investors who are inclined to commit their funds for an extended period. The scheme has a maturity period of 15 years, during which only partial withdrawals are permitted after completing five years of consistent contributions. Following the lock-in period (15 years), investors have the option to extend the tenure indefinitely in blocks of 5 years.  

Tax-exemption: PPF falls within the EEE (Exempt-Exempt-Exempt) category of Income Tax implications. This means that contributions of up to Rs. 1.5 lakh in PPF qualify for deductions under Section 80C of the Income Tax Act. Furthermore, the interest earned on the principal amount, along with the maturity amount, is exempt from taxes. This serves as a compelling reason for individuals to consider PPF as a viable investment option.

Things to know about ELSS

Fund returns: Before selecting a fund, assess its performance by comparing it with its competitors and the benchmark to ascertain whether it has consistently outperformed it in the past. While no fund can always be at the top, high-quality funds typically demonstrate a presence in the top quartiles for prolonged periods.    

Financial parameters: Additionally, you may evaluate a fund's performance by considering various parameters such as standard deviation, Sharpe ratio, alpha, and beta. Funds with higher standard deviation and beta indicate higher risk compared to those with lower values. Opt for funds exhibiting a higher Sharpe ratio.   

SIP or Lumpsum: Before committing to an investment in ELSS, it's crucial to decide on the mode of investment—either through SIP or lumpsum. With the SIP method, you invest a fixed amount at regular intervals, usually monthly. Conversely, the lumpsum method involves investing a substantial sum in a single transaction. Generally, the SIP mode is often regarded as the preferable option because it leverages the benefit of cost averaging. This means you receive more units when the market is down and fewer units when it's up. However, if you have a surplus amount, you may also opt for the lumpsum investment approach.  

Growth & Dividend Options: As an investor, you have the choice between growth and dividend options. With the dividend option, you can receive regular income through dividend payouts for the entire duration of your investment in ELSS. If you opt for the growth option, there are no dividend payouts; instead, the dividends are reinvested in the fund to acquire more units and promote capital growth. Reinvesting dividends enhances the Net Asset Value (NAV) of the units, contributing to increased profits for the investor, particularly during favourable market conditions.

How to Invest in ELSS And PPF?

Between ELSS Vs PPF, ELSS is essentially a mutual fund that qualifies for a deduction under section 80C for the investments made. Various Asset Management Companies (AMCs) provide ELSS schemes. In contrast, PPF is available through banks, allowing you to open a PPF account with the same bank where you hold your savings account.


Though both ELSS Vs PPF schemes offer tax savings, it's crucial to select one based on return expectations, risk tolerance, and investment time horizon. PPF is ideal for individuals who are entirely risk-averse and can commit to a 15-year lock-in period. On the other hand, investors willing to assume moderate risk for potentially higher returns may choose ELSS. The most effective way to minimize risk in ELSS is by maintaining a long-term investment approach.

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