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Your Questions Answered: I am 26 and looking for tax-saving investments. Is ELSS mutual fund better than PPF?

Updated: 14 Apr 2023, 11:41 AM IST

ELSS mutual funds offer potentially higher returns with greater volatility, whereas PPF provides guaranteed returns with low risk.

The ELSS category, under which investors can invest up to 1. 5 lakh and save tax under Section 80C of the Income Tax Act, manages 1.56 lakh crore of assets.

The ELSS category, under which investors can invest up to 1. 5 lakh and save tax under Section 80C of the Income Tax Act, manages 1.56 lakh crore of assets.

Q. I am a 26-year-old professional, working at an MNC. I am currently situated in the highest tax bracket, and I am constantly looking for tax-saving investments. I at present wish to contribute a certain portion of my salary every month to either ELSS Mutual Fund or Public Provident Fund, however, I am unable to decide which one is a better option for me. Can you please simplify both investment products and elaborate on the key differences between the two investment options?

Vikram Kotillil, Kozhikode, Kerala

The Public Provident Fund (PPF) scheme was launched by the National Savings Institute, a unit of the Government of India in 1968. It is widely considered as one of India's most popular and safest ways to invest money for a long term.

The main goal of the government behind launching the PPF scheme is to help people save small amounts of money and start investing with as little as Rs. 500/-. PPF has historically provided returns at par with long term fixed deposits. PPF scheme at present has an attractive interest rate of 7.1% p.a.

Some of the most important aspects of PPF are as follows :

  • Interest rate

The PPF provides a return at an interest rate which is decided every quarter by the central government. The interest rates are typically higher (7.1% p.a. currently) than the interest rate offered on long term fixed deposits offered by banks.

  • Tax benefits

Under Section 80C of the Income Tax Act, you can get a tax exemption for money you put into a PPF account up to a limit of 1.5 Lakh. Additionally, the interest earned from a PPF Investment is also not taxed. Lastly, the money you get paid out on maturity is also not taxed.

  • Tenure

PPF account has a minimum tenure of fifteen years. After they pass this point, they can choose to extend the tenure by 5 years as many times as they wish.

  • How many accounts

Each person can only have one PPF account under their own name. However, it is important to note that PPF accounts can also be opened in the name of children.

  • Eligibility

Any Indian citizen can open a PPF account. There is a minimum or maximum age limit.

  • Amount of the investment

The least you need to invest is Rs. 500, and the most you can invest in a financial year is Rs. 1.5 lakh. You can invest all at once or in small amounts over time.

  • How to pay in

Investors can put money into their PPF account with a demand draft, cash, a check, or online payment gateways.

  • Loan

Investors who have a PPF account can get a loan against it after the third year of account opening. The maximum loan amount they can get is 25% of their balance at the end of the second year immediately preceding the year in which they applied for the loan. After paying back the first loan amount, investors can also get a second loan.

  • Risks

Since the Indian government guarantees the returns of the PPF, there aren't many risks involved. It is considered as one of the safest tax saving investments.

ELSS mutual fund explained

An equity-linked savings plan (ELSS) is a category of mutual fund wherein at least 80% of the corpus is invested in equity securities. Under Section 80C of the Income Tax Act, you can get a tax exemption up to Rs. 1.5 lakh on your ELSS investments. ELSS has the shortest lock-in period, which is three years, amongst all of the tax-saving investments. This means that you can sell your mutual fund units only three years after you bought them.

ELSS mutual fund vs PPF

Some of the key differences between ELSS mutual fund and PPF are as follows:

  • Risk

PPF is a government-backed scheme as a result it is an extremely low-risk investment. It is a better investment choice for individuals with a low-risk appetite. ELSS mutual funds, on the other hand, invest in stocks and other equity securities which constitute 80% of their corpus. Since they are exposed to market risks, they are a better choice for investors who are ready to risk volatility for achieving potentially higher returns.

  • Returns

The Government of India sets the interest rate on PPF investments, which is currently 7.1%. In case of ELSS mutual funds, there are no fixed returns, your returns vary from mutual fund to mutual fund. In the long run historically top performing ELSS mutual funds (top 10) have provided better returns than PPF.

  • Taxes on returns

Investing in the PPF gives you tax exemption under 80C additionally all of your returns are tax exempt too. When it comes to ELSS, investments are tax exempt up to Rs. 1.5 Lakh per financial year, however, depending on the period of investment, investors are liable to pay short term capital gains tax at 15% or long term capital gains tax at 10%.

  • Lock-in period

An investment in the PPF is locked in for 15 years. The lock-in period for ELSS is only 3 years. But you can retain the money for a longer time if you wish to.

  • Tenure

You can put money into a PPF account for 15 years, and you extend the tenure by 5 years thereafter. ELSS investments have no time limit, you can invest in them as long as you wish.

  • Volatility

The government declares the fixed interest rate offered to all PPF investors at the beginning of each financial quarter. ELSS funds are invested in stocks, therefore they are susceptible to the ups and downs of the stock market.


ELSS mutual funds and PPF cater to individuals with very different risk appetite. In the case of PPF there is almost 0 risk since it is a government backed scheme. In case of ELSS mutual funds there are no guaranteed returns, however, the potential to get high returns is greater. There are other differences too in respect of tenure, lock-in period, tax exemption, etc. One should assess his financial situation and risk appetite and thereafter choose the financial product most suitable to himself/herself.

Kuvera is a free direct mutual fund investing platform.

Note: This is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.

PPF versus ELSS
First Published: 14 Apr 2023, 11:17 AM IST