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ELSS vs PPF – The Best Tax Saving Instrument

Many people wonder which tax-saving option—ELSS or PPF—will save them the most money. So let us compare ELSS and PPF to see which offers the best yields and potential for tax savings.

Both the public provident fund (PPF) and the equity-linked savings scheme (ELSS) allow you to reduce your tax liability. Apart from that, they have numerous other differences. For example, ELSS investments rely on equity and are more volatile than PPF investments, which are debt instruments with low volatility.

Under Section 80C of the Income Tax Act of 1961, you are eligible for a maximum deduction of INR 1.5 Lakh for both ELSS and PPF.

Many individuals inquire about PPF vs ELSS to choose investments that save taxes. So let us examine and evaluate the applicability of ELSS mutual funds and PPF.

What are ELSS funds?

This tax-saving mutual fund helps you build long-term wealth while also saving taxes.

ELSS funds earn profits by mainly investing in equities and instruments related to equity. This makes it a great investment option for someone with long-term objectives.

When we compared ELSS to other investment alternatives that qualify for tax deductions under Section 80C of the Income Tax Act, 1961, investing in ELSS offers the finest mix of high returns and a short lock-in period. The lock-in period for ELSS is 3 years and it has the potential to offer returns of 12% p.a. and above over longer terms of 8-10 years. 

Additionally, you can invest as low as INR 500 per month and still have a diversified equity portfolio.

What is PPF investment?

PPF is a debt investment backed by the Indian government appropriate for long-term financial objectives, including saving for retirement and children’s education. You can save up to INR 1.5 lakh in taxes under section 80C by investing in PPF.

PPF has a longer lock-in term of 15 years. You can extend it in blocks of five years. However, there is a provision for early withdrawal starting in the sixth year.

A loan on your PPF account is another option; you can use that facility from the third through the end of the sixth financial year. You have to repay this loan in 36 months. 

The loan term is 36 months. You can seek a maximum loan amount of 25% of the outstanding sum at the end of the two years immediately before the year for which you seek the loan. The interest rate is 1% higher than the present government-set interest rate. As the current PPF interest rate is 7.1%, the interest rate for the loan will be 8.1%. 



Because the Indian government backs the Public Provident Fund, PPF investments carry low risk. They are therefore a preferred investment choice for those who are risk-averse.

For those who are ready to risk volatility in exchange for long-term benefits, ELSS funds are a superior investment alternative because they invest in equities and equity-related products. These funds face market risks. 


The Government of India sets the interest rate on PPF investments, which is currently 7.1%.

Market movements have an impact on ELSS returns. ELSS funds have the potential to give you annualized returns of 12% and more. 

Tax on Returns

PPF investments have the benefit of completely tax-free returns. Long-term gains of more than INR 1 lakh in ELSS are taxable at 10% plus applicable surcharge and cess.

Lock-in Period

PPF investments have a 15-year lock-in term with the option of a partial exit after five years.

The lock-in period for equity-linked saving plans, or ELSS, is only three years. However, you have the option of holding the investment for a longer period.

Time Horizon

In a PPF account, you can invest for a term of 15 years with an additional extension in blocks of 5 years.

There is no time frame on ELSS investments, so you can keep making these investments for as long as you like.


The government uses the collected PPF money, and you can earn a fixed interest. Therefore, there is no issue with volatility.

Equity investments make ELSS funds volatile and sensitive to market swings.

Offered Through

Banks and the post office offer PPF. However, you must first open a PPF account and go through the KYC procedure before you invest. Additionally, you can create a joint PPF account with and for a juvenile.

A mutual fund house offers ELSS and a fund manager manages it. Thus, you have a variety of direct investment options, including the AMC website, online investment portals, Demat agents, and registrars.


Both PPF and ELSS investing options allow for monthly or one-time contributions.

The minimal investment in PPF is INR 500. The maximum investment is INR 1.5 lakh for each financial year.

You can call the system of monthly payments to your ELSS plan a Systematic Investment Plan (SIP). There is no maximum investment amount in SIP. You can begin investing with INR 500. You can also compare SIP and lump sum mutual fund differences.

Premature Withdrawal Facility

After five years of investing, you can partially withdraw funds from your PPF account. But you cannot do the same with ELSS until the three-year lock-in period is over.

PPF or Mutual Fund ELSS?

As a taxpayer and investor, it is up to you to choose according to your investment objectives, financial strategy, level of risk tolerance, and, most crucially, the available time frame.

Additionally, keep in mind the possibility of a premature withdrawal. If you want money during the investment period, the PPF provides a partial withdrawal window in addition to the option of taking a loan. After the initial 5-year lock-in period, you can withdraw 50% of the funds available at the end of the fourth financial year.  

Partial withdrawals are not permitted during the lock-in period for ELSS. However, the lock-in time for ELSS is three years, whereas the lock-in period for PPF investments is fifteen years.

Other Investment Alternatives 

To expand your portfolio, it is always a good idea to consider various investment alternatives. Thus, you reduce your risk and maximize your rewards. You can make investments in safer options like fixed deposits and government bonds. Consider investing in stocks if you have a high-risk tolerance. One of the rapidly growing investment opportunities is P2P lending. FMPP investors have earned upto 12% p.a. since launch

LenDenClub is India’s largest alternate investment platform which started operations in India in 2015. We have been helping investors diversify their investments beyond traditional investment instruments ever since.



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LenDenClub is an Intermediary under the provisions of the Information Technology Act, 2000 and virtually connects lenders and borrowers through its electronic platform via the website and/or mobile app.

The lending transaction is purely between lenders and borrowers at their own discretion, and LenDenClub does not assure loan fulfilment and/or investment returns. Also, the information provided on the platform is verified or checked on the best efforts basis without guaranteeing any accuracy of the data/information verification. Any investment decision taken by a lender on the basis of this information is at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower, fully or partially. The risk is entirely on the lender. LenDenClub will not be responsible for the full or partial loss of the principal and/or interest of lenders’ investment amounts.


*P2P investment is subject to risks. And investment decisions taken by a lender on the basis of this information are at the discretion of the lender, and LenDenClub does not guarantee that the loan amount will be recovered from the borrower.

** Average value mentioned is the weighted average of returns received by investors

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