ELSS vs PPF
Both save tax under Section 80C. But their returns, risk and lock-in are very different. Here's how to choose.
Important: New vs Old Tax Regime
Both ELSS and PPF give 80C deductions only under the old tax regime. If you are under the new tax regime (default from FY 2023-24), neither gives you a tax deduction - though PPF interest remains tax-free either way.
Choose ELSS if…
- ✓ You have a 5+ year horizon
- ✓ You can stomach market volatility
- ✓ You want higher potential returns (12-15%)
- ✓ You want the shortest 80C lock-in (3 years)
- ✓ You are under 45 with stable income
Choose PPF if…
- ✓ You are risk-averse or near retirement
- ✓ You want guaranteed, tax-free returns
- ✓ You need a long-term debt allocation
- ✓ You want a corpus untouched for 15 years
- ✓ You are in the 30% tax bracket (EEE is powerful)
₹1.5 lakh/year for 15 years - what you get
| Option | Corpus after 15 years | Tax on gains |
|---|---|---|
| PPF @ 7.1% | ₹41.0L | Nil (EEE) |
| ELSS @ 12% CAGR | ₹74.9L | 12.5% LTCG on gains above ₹1.25L/yr |
| ELSS @ 15% CAGR | ₹1.07Cr | 12.5% LTCG on gains above ₹1.25L/yr |
ELSS corpus is pre-tax. After 12.5% LTCG on gains above ₹1.25L/year, net ELSS at 12% CAGR ≈ ₹70-72L - still well ahead of PPF, but with market risk.
Full comparison
| Parameter | ELSS | PPF |
|---|---|---|
| Full form | Equity Linked Savings Scheme | Public Provident Fund |
| Type | Equity mutual fund (market-linked) | Government-backed (risk-free) |
| Lock-in period | 3 years (shortest among 80C options) | 15 years (extendable in 5-yr blocks) |
| Max 80C deduction | ₹1.5 lakh/year | ₹1.5 lakh/year |
| Returns (historical) | 12-15% CAGR (Nifty 50 index: ~12-14%) | 7.1% p.a. (current, compounded annually) |
| Risk | High - can fall 30-50% in bear markets | Zero - sovereign guarantee |
| Tax on returns | LTCG 12.5% above ₹1.25L/year | Completely tax-free (EEE status) |
| Liquidity | After 3-year lock-in; fully liquid then | Partial withdrawal after year 7; premature closure only after 5 years |
| Loan against | Not available against ELSS | Available from year 3 to 6 (up to 25% of balance) |
| SIP option | Yes - monthly SIP of ₹500+ | Manual deposits; no auto-SIP |
| Demat needed | No (direct plan via MFU/CAMS/AMC) | No (post office or bank) |
| Applicable regime | 80C deduction - only old tax regime | 80C deduction - only old tax regime |
The smart approach: both
Many investors split ₹1.5 lakh between ELSS (₹1 lakh) and PPF (₹50,000). This captures ELSS's equity upside while maintaining a guaranteed, tax-free PPF debt component for stability.