ELSS vs PPF: Which One To Opt For?

If you're planning to invest in PPF or ELSS, read this BQ Prime guide to make an informed decision.

<div class="paragraphs"><p>Image Source: Freepik</p></div>
Image Source: Freepik

Are you planning to invest in PPF or ELSS to get better returns over time and save your taxes? Are you confused about what scheme to opt for? If yes, then this blog will help you make a decision.

ELSS and PPF are both profitable and decent schemes, however, both differ in some parameters. Let’s dig in!

What is ELSS? 

ELSS stands for Equity Linked Savings Scheme and is a tax-saving mutual fund that also helps you create long-term wealth. These funds have a lock-in period of just three years. It is the shortest period among all tax-saving investments. Most importantly, ELSS has the ability and potential to offer you the highest returns among 80C options.

ELSS investment also allows you to invest a small amount every month (SIP), and you can invest as low as Rs 100 a month. By investing in this scheme, you can claim a tax rebate of up to Rs 1,50,000. Simply put, you can save up to Rs 46,800 a year in total taxes.

What is PPF? 

PPF stands for Public Provident Fund and is one of the most popular long-term saving and investment products. This scheme is a perfect blend of safety, tax returns and savings. The PPF scheme was introduced to the public in the year 1968 by Finance Ministry’s National Savings Institute. Since then, it has developed as a powerful investing and tax-saving instrument. However, PPF investment has a 15-year maturity. Also, you can extend the tenure in blocks of 5 years if you wish.

In this scheme, the government fixes the interest rate every quarter, and the returns on the investment are not taxable. Additionally, you can invest an amount as low as Rs 500 and a maximum of 1,50,000 in a financial year. The government also allows you to take a loan on your PPF account between the 3rd and 5th year and make partial withdrawals after the 7th year. However, withdrawals can be made for emergencies only.

Now, that you have understood both investments, let’s move ahead and understand the major differences between the two.


1. Returns: As mentioned above, the returns on PFF investment are decided by the government. The present rate of Interest is 7.9%. Whereas in ELSS, the returns are completely dependent on the market. The historical 3-year annualized returns on ELSS funds are 12% or above.

2. Risk: PPF comes with low risk as it is backed by the government and the interest rate is also fixed. Whereas ELSS are exposed to market risks. If you want to invest without taking much risk, PPF would be a better option and if you are comfortable with taking risks to create long-term wealth, ELSS is your option.

3. Tax on Returns: As mentioned above, returns on PPF investments are completely tax-free. Whereas, in ELSS, the gains of over Rs 1,00,000 are considered long-term capital gains and are taxed at the rate of 10%. 

4. Maturity Period: PPF has a maturity period of 15 years, which you can extend in a block of 5 years. ELSS has a maturity period of only 3 years. This also allows you to keep the investment for a longer period.

5. Volatility: As the interest rate is fixed by the government in PPF, there is nothing like volatility. But, in the case of ELSS, funds are subjected to market fluctuations and volatility.

6. Procedure to invest: You can invest in PPF through banks and the post office, and in ELSS, you can invest directly through the AMC website, online investment portals or through Demat agents and registrars. 

7. Premature withdrawal: PPF allows premature withdrawals after the completion of 5 years, but there is no such facility in ELSS.

Concluding words

We have clarified all the parameters of both investments, now, as per your requirements, you can make an informed decision.