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ELSS Vs PPF: Which is Better for Tax Saving?

Updated on July 7, 2020 , 2999 views

ELSS vs PPF? Looking for answers to this question while Investing in tax saving Mutual Funds? An ideal Tax Planning should start at the beginning of the Financial Year. There are various Income Tax saving schemes under which one can save their hard-earned money, ELSS or Equity Linked Saving Schemes and PPF or Public Provident Fund being the most favourable ones. Before comparing these two options, let's first get a brief understanding of each of these individually.


ELSS Funds

Equity Linked Saving Schemes or ELSS is a diversified Equity Fund that invests most of its assets in equities or stock markets. The minimum limit of investing in ELSS Mutual Funds is INR 500 and there is no maximum limit. Also referred to as tax saving Mutual Funds, ELSS funds provide tax benefits and are liable for deductions under Section 80C of the Income Tax Act. Consider Best elss Funds offered by various Mutual Fund companies when buying Equity Linked Savings Schemes.

PPF or Public Provident Fund

Under the PPF Act of 1968, PPF was framed as one of the Tax Saving Scheme of the Central Government. Public Provident Fund is a long-term investment option that offers attractive interest rate. As PPF investment is backed by the Government of India, it is a safe investment option along with its amazing tax benefits, low maintenance cost and loan options.

Difference Between ELSS and PPF

There are various parameters to compare these two schemes. Below are a few of those -

Rate of Interest

For PPF, the interest rate is fixed while for the ELSS Mutual Funds the returns vary. As Public Provident Fund invests in government Bonds the interest rate is decided already. Currently, the interest rate of PPF is 7.60% p.a. Further, ELSS funds being invested in the equity markets, have variable returns. The returns can go fairly high or fairly low depending on the stock market performance.

Lock-in Period

For both PPF and ELSS, there is a specified lock-in period. The PPF lock in period is 15 years, though you can withdraw a limited amount after 5 complete Financial Years. This makes it a long-term investment providing good returns. On the other hand, ELSS Mutual Funds have a short lock-in period of 3 years. This makes it suitable for fulfilling your immediate future needs.

Risk Factors

PPF Funds are provided by the Government of India and offer fixed interest rates, so they are one of the safest possible investments in India. But, the ELSS Mutual Funds are riskier. It is a market linked investment thus having a higher risk probability. Though, some of the best ELSS Mutual Funds have the potential of providing good returns over a longer period of time.

Tax Deductions Under Section 80C of Income Tax Act

Both ELSS and PPF schemes are liable for tax benefits under section 80C of the Income Tax Act. For these investments, the tax deductions come under EEE (Exempt, Exempt, Exempt) category. Under this category, you do not have to pay tax in the entire investment cycle. So, initially the investment is tax-free, then the returns are tax-free and finally, the total income on investment is tax-free in the hands of the investor. So, the returns of both these funds are tax exempt and there is no taxation on the maturity amount.

Investment Limit

Under section 80C, one cannot invest more than INR 1,50,000 in PPF investments. For Equity Linked Saving Schemes, there is no maximum limit specified. Though the benefits can be availed only till an upper limit of INR 1,50,000.

Pre-mature Withdrawal

Closing ELSS and PPF Mutual Funds within the lock-in period is not allowed. Only in the case of demise of the account holder, the withdrawal of PPF funds is possible and that too with some penalties.

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Understand briefly about difference between ELSS vs PPF. The parameters used here are returns, tax exemption, lock-in, risk, etc.

Let's have a look-

PPF (Public Provident Fund) ELSS (Equity Linked Saving Scheme)
Being backed by the Government, PFF is safe ELSS is volatile and risky
Fixed return- 7.60% p.a. Expected return - 12-17% p.a.
Tax Exempt : EEE (Exempt, Exempt, Exempt) Tax Exempt : EEE (Exempt, Exempt, Exempt)
Lock-in period - 15 years Lock-in period- 3 years
Better suited for risk averse users Better suited for risk takers
Can deposit up to INR 1,50,000 No deposit limit

Best ELSS Funds for 2020 - 2021

FundNAVNet Assets (Cr)3 MO (%)6 MO (%)1 YR (%)3 YR (%)5 YR (%)2019 (%)
Axis Long Term Equity Fund Growth ₹44.8296
↑ 0.33
Canara Robeco Equity Tax Saver Growth ₹65.32
↑ 0.58
Invesco India Tax Plan Growth ₹49.46
↑ 0.29
Mirae Asset Tax Saver Fund Growth ₹17.503
↑ 0.11
₹3,18419.9-8.9-0.95.8 14.1
Motilal Oswal Long Term Equity Fund Growth ₹16.0858
↑ 0.10
Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 9 Jul 20


Now, the pros and cons of both ELSS and PPF schemes must be clear to you. But, these pros and cons usually vary according to the needs of people. Someone would be looking for a long-term investment while the other must be looking for a relatively shorter one (more than 3 years). Due to which, the investment options differ drastically. So, analyse these two according to your needs and choose the most suitable one.

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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