Whenever we plan year-end investments, the question that comes to every investor’s mind is which option to choose between the Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF) for tax savings and long-term returns. Both schemes offer tax exemptions up to ₹1.5 lakh under Section 80C of the Income Tax Act, but their nature, risk, and return potential differ significantly. Understanding these differences is crucial for determining your investment strategy.
ELSS
ELSS, or Equity Linked Savings Scheme, is a mutual fund-based tax-saving product that primarily invests in stock market companies. Due to its market linkage, its return potential has historically been significantly higher than that of PPF, typically ranging from 11% to 14%.
The biggest advantage of ELSS is that it has the shortest lock-in period compared to other tax-saving instruments, at just 3 years. You can start investing in it with as little as ₹500 through a monthly SIP (Systematic Investment Plan). However, since it is dependent on the stock market, it involves market risk, and returns are not guaranteed. Withdrawals are completely free after three years, but profits above ₹1 lakh are subject to a 10% long-term capital gains tax (LTCG).
ELSS
On the other hand, the Public Provident Fund (PPF) is an old and very popular investment option operated by the Government of India. It is virtually risk-free, as its interest rate is fixed by the government and reset every three months (currently at 7.1%). PPF has a maturity period of 15 years, which assures investors of long-term security.
The interest earned on PPF and the maturity amount are also completely tax-free (i.e., they fall under the EEE (Exempt, Exempt, Exempt) category). Partial withdrawals are available from the sixth year, and loan facilities from the third year. PPF is best suited for those who want the greatest security on their investment.
Which plan is best for you
Ultimately, the question is, which of these two options should you choose? The answer depends on your personal risk profile and investment objectives. If your priority is high returns and liquidity, and you are willing to take market risk then Choose ELSS The short lock-in period of 3 years makes it flexible. If Your priority is investment safety, stability, and completely tax-free returns then Choose PPF . It is better for those who can stay invested for 15 years. Both schemes offer good results for long-term investments. Remember, it is essential to analyse your needs and risk tolerance before making any financial plan.