
Tax saving and its calculations are a major challenge for most people. And on top of that, when you have to compare multiple tax savings options, the job doesn’t become easy. And while comparing different tax saving options, it is not always an apple-to-apple comparison. So in this article, we tried to ease your pain when it comes to comparing ELSS vs PPF.
ELSS and PPF are two of the most used Tax Savings Instruments in India and they can be very helpful when used correctly. But not knowing when and how to use them and improper implementation of these instruments can scar your financial health for life. Through this ELSS vs PPF article, we tried to save you from committing such blunders and ruining your financial health.
- What is ELSS?
- How much can you Deposit in an ELSS Fund?
- What is the Minimum Investment Amount of an ELSS Fund?
- How to Calculate Lock-in Period in an ELSS Fund?
- Which is the Best Way to Invest in an ELSS Fund, SIP or Lumpsum?
- From where can I Invest in an ELSS Fund?
- What is PPF?
- How much can you Deposit in PPF?
- What is the Minimum Deposit Amount in a PPF Account?
- How many times can you Deposit in a PPF Account?
- Which is the Best Way to Invest in a PPF Account? – Monthly Deposit or Lumpsum Deposit
- How to Open a PPF Account?
- Similarities between ELSS vs PPF
- What is the Difference between ELSS vs PPF?
- Which is the Most Efficient Way of Tax Savings between ELSS vs PPF?
- Conclusion
As said by a wise man – “Getting Back to Basics is the Simplest Way to Find Calm in the Chaos”. So let us start with the basics first!
What is ELSS?

ELSS or Equity Linked Savings Scheme is a type of Tax Saving Mutual Fund where investors invest in order to get a maximum tax deduction of up to Rs. 1,50,000/- on their taxable income on a yearly basis under Section 80C of the Income Tax Act of 1961.
How much can you Deposit in an ELSS Fund?
You can deposit as much as you want in an ELSS Fund but you can only avail up to Rs. 1,50,000/- tax deduction on your taxable income within a financial year.
Let us simplify it a bit for you with an example.
You might invest Rs. 3,00,000/- or Rs. 3 Lakhs in an ELSS Fund in a single financial year starting from the 1st of April and ending on the 31st of March of the next year. But you cannot claim more than Rs. 1,50,000/- tax deduction on your taxable income from that investment.
What is the Minimum Investment Amount of an ELSS Fund?
The Minimum Investment Amount of a particular ELSS Fund depends on that fund, but you can find ELSS Funds starting with an Initial Investment as low as Rs. 100/-.

But remember, you shouldn’t be choosing an ELSS Fund just on the basis of the Minimum Initial Investment Amount. There are a lot of things to consider before investing in an ELSS Fund.
How to Calculate Lock-in Period in an ELSS Fund?

If you invest in an ELSS Fund through Lumpsum Investment Method then your Lock-in Period starts from the Date of Investment. Let us understand this with an example.
If you have invested your money in an ELSS Fund on the 10th of September, 2019 through Lumpsum Method, then you can redeem your Mutual Fund Units on the 10th of September, 2022. Because ELSS Funds has a Lock-in Period of 3 Years.
But if you invest through the SIP Method, then each SIP will have its own Lock-in Period starting from the Date of Investment of each SIP. Let us see an example.
If you started your SIP on the 15th of April, 2019, and ended your SIP on the 15th of June, 2019. Then your 1st SIP will become redeemable on the 15th of June, 2022. Your 2nd SIP will become redeemable on the 15th of May, 2022 and your 3rd SIP will become redeemable on the 15th of June, 2022.
Money Premier Tips
If you want to make the calculation of the lock-in period easy for you, then consider each SIP as a separate Lumpsum Investment.
And if you are in no hurry to redeem your ELSS Investment, then to avoid all confusion, redeem it after the 3rd Year of your final SIP.
Which is the Best Way to Invest in an ELSS Fund, SIP or Lumpsum?
Generating quality returns, through Lumpsum Investment in an ELSS Fund, requires in-depth market knowledge and you have to time the market which is not advisable. So the best way to invest in any equity product for most investors is through SIP. SIP averages out the ups and downs of the market, minimizing the risk.
From where can I Invest in an ELSS Fund?
You can invest in an ELSS Fund in 3 ways.
- Through the portal of the AMC or the Fund House that manages the particular ELSS Fund.
- Through a broker’s platform like Upstox MF Platform (We had a detailed discussion in our Upstox Review about how to invest in mutual funds through Upstox) or Zerodha Coin ( You need a Zerodha Demat Account to use the Zerodha Coin platform).
- In the era of smartphones, you can use apps like Groww. (In our Index Fund vs Mutual Fund article we have talked about how to use the Groww App, in detail).
We suggest you not use Full-Service brokers or Mutual Fund Agents to invest in Mutual Funds, as they do not provide Direct Funds and you have to pay the broker commission which will add up to a huge amount in the long term.
What is PPF?

PPF or Public Provident Fund is a EEE Rated, Government-Backed Tax Savings Scheme where investors invest to get a maximum tax deduction of up to Rs. 1,50,000/- on their taxable income every year under Section 80C of the Income Tax Act of 1961.
How much can you Deposit in PPF?
In a given financial year, that is, from 1st of April to 31st of March, you can only deposit up to Rs. 1,50,000/- on your PPF Account.
What is the Minimum Deposit Amount in a PPF Account?
You have to make a Minimum Annual Contribution of Rs. 500/- towards your PPF Account in a single Financial Year.
The Interest in a PPF Account is calculated monthly. You have to deposit your money in your PPF account before the 5th of the Month if you want your contribution to earn the deposit month’s interest.
For Example – If you deposit your money on the 5th of April, then your investment will be eligible for the Interest of May. But if you deposit on the 4th of April, then your contribution is eligible for the Interest of April.
How many times can you Deposit in a PPF Account?
According to the new PPF Rules, as an Individual, you can deposit Any Number of Times in your PPF Account in the multiple of Rs 50/-. But the yearly deposit amount should not exceed Rs. 1,50,000/-.
The Old Rule which allowed you to deposit only 12 Times in your PPF Account in a financial year, in the multiple of Rs. 5/- is not valid anymore.
Sources – Live Mint, Financial Express
Which is the Best Way to Invest in a PPF Account? – Monthly Deposit or Lumpsum Deposit

An annual Lumpsum Deposit within the 5th of April of the financial year is always more profitable in the case of PPF than the Monthly Deposit.
PPF is a Low-Risk, Government-backed Savings Scheme, and the Volatility in a PPF account is near about NIL. You don’t need to average out any considerable amount of Volatility in a PPF Account. So investing through the Lumpsum Method in a PPF Account will yield the most return.
How? Well, let us show you an example.
At the moment, the Interest Rate in a PPF Account is 7.1%. And you will be investing Rs. 100 before the 5th of each month for a year.
So for the 1st Month –
Opening Balance – Rs. ZERO
Deposit Amount = Rs. 100
Interest Incurred in that Month = Rs. (100 x 7.1%) / 12 = Rs. 0.591/-
Closing Balance – Rs. 100/- (The Interest in your PPF Account gets credit on an Annual Basis.)
For the 2nd Month –
Opening Balance – Rs. 100/-
Deposit Amount = Rs. 100
Interest Incurred in that Month = Rs. (200 x 7.1%) / 12 = Rs. 1.183/-
Closing Balance – Rs. 200/-
For the 3rd month –
Opening Balance – Rs. 200
Deposit Amount = Rs. 100
Interest Incurred in that Month = Rs. (300 x 7.1%) / 12 = Rs. 1.775/-
Closing Balance – Rs. 300/-
So on and so forth.
And on the 12th Month –
Opening Balance – Rs. 1,100/-
Deposit Amount – Rs. 100/-
Interest Incurred in that Month =Rs. (1,200 x 7.1%) / 12 = Rs. 7.10/-
Whereas if you directly deposit Rs. 1,200/- on the 5th of April and do not contribute a single penny for the whole year, then for each month, you will be earning an interest of Rs. (1,200 x 7.1%) / 12 = Rs. 7.10/- per month.
How to Open a PPF Account?
You can open a PPF Account in a Bank or a Post Office via both the Online and Offline processes. To open a PPF account through the Online process, please visit the portal of your preferred bank or the portal of the Post Office.
Similarities between ELSS vs PPF
Though both ELSS and PPF are Tax Saving Instruments, there are very few similarities between ELSS vs PPF.
- Both are Tax Saving Instruments.
- Your investment in both instruments gets locked up for a certain period.
- You can claim a tax deduction under Section 80C on your taxable income if you invest in either ELSS or PPF.
- You can Invest in both of the instruments on a Regular Basis either through SIP or Monthly Deposits or on a One Time Basis through Lumpsum Investment.
What is the Difference between ELSS vs PPF?

Both ELSS and PPF are used for Tax Saving purposes, but each instrument is vastly different from the other one.
Difference between ELSS and PPF
- Volatility and Market Risk – A major portion of an ELSS Fund’s Portfolio remains invested in the Equity Market, that is why ELSS Funds are more Volatile and are also subjected to Market Risk. Whereas PPF is a Government-Backed Savings Scheme, so there is very Low Volatility, and the money invested in a PPF Account is not subjected to market risk.
- Returns – Investing through an ELSS Fund allows you to participate in the Equity Market, so the Return On Your Investment in an ELSS Fund will always be higher compared to PPF.
Whereas, the Interest Rate of the PPF is set by the Government every quarter. - Lock-in Period – PPF being less risky comes with a Mandatory Lock-in Period of 15 Years from the date of Opening the PPF Account.
Whereas ELSS, which is more risky and volatile because it is a market-linked Equity Mutual Fund, comes with a Lock-in Period of 3 Years. - Contribution Limits – In a PPF Account, you cannot deposit more than Rs. 1,50,000/- within a single financial year. But you can invest more than Rs. 1.5 Lakh in an ELSS Mutual Fund but you cannot claim more than Rs. 1.5 Lakh Tax Deduction in a single financial year.
- Tax Benefits – As discussed earlier, both ELSS and PPF provide tax benefits under Section 80C. But PPF falls under EEE or Exempt – Exempt – Exempt Category, which means –
(A) You can claim a Tax Deduction equivalent to the Invested Amount up to the limit under 80C.
(B) Interest earned on that Investment is Tax-Free.
(C) Interest during Withdrawl also remains Tax-Free.
Whereas ELSS falls under the EET or Exempt – Exempt – Taxable Category, which means –
(A) You can claim a Tax Deduction equivalent to the Invested Amount up to the limit under 80C.
(B) The gains you have incurred on your investment remain Tax-Free.
(C) During withdrawal, gains above 1 Lakh Rupees within a year are subjected to 10% Long Term Capital Gains Tax. - Premature Withdrawal – You can partially withdraw from your PPF Account under certain circumstances after 5 Years from the date of opening your PPF Account. Whereas in the case of ELSS, you cannot withdraw your investment before the completion of 3 years.
- Time-Bound – In the case of PPF, you have to remain invested for 15 Years and if you want, you can extend it by 5 more years.
ELSS has no such upper limit. You have to remain invested in an ELSS Fund for 3 years and after that, you can either withdraw your investment or you can let your investment ride the Compounding Wave.
So to finalize this section, we made an easy-to-understand table for you, below.
Characteristics | ELSS (Equity Linked Saving Scheme) | PPF (Public Provident Fund) |
Risk | Moderate – High | Very Low |
Volatility | High | Low |
Returns | High | Low |
Tax Deduction Under 80C | Yes | Yes |
Totally Tax-Free | No | Yes |
Lock-in Period | 3 Years | 15 Years |
Mandatory Yearly Investment | No | Yes |
Minimum Investment | Rs. 100/- | Rs. 500/- |
Loan | No | Yes |
Which is the Most Efficient Way of Tax Savings between ELSS vs PPF?
Now let’s try to answer the most important question – “Which is the most efficient way of tax savings? ELSS or PPF?
The answer to this question again falls in that irritating category of “It Depends“. It depends from person to person and on their financial goals.
The returns on your investment in an ELSS Fund will be high compared to a PPF Account. But Mutual Fund Investing is never as Virtually Risk-Free as a PPF Account.
Though ELSS Funds provide quite high returns compared to PPF, the returns are rarely Tax-Free in an ELSS Fund.
In a PPF Account, your investments get locked up for 15 Years and only in certain situations you are allowed to partially withdraw your money or avail a loan against your PPF Account.
Whereas in an ELSS Fund, if you want you can take out your Investment + Gains / Losses within just 3 years. Because of this relatively high liquidity, ELSS is becoming more and more popular as an Instrument of Tax Savings.
Now, if the answer varies from case to case, then –
Who Should Invest in ELSS Funds?
If you have a Long Investment Horizon and if you want Returns on your investment similar to that of an Equity Fund and if you want to enjoy Tax Benefits on your Investment then you should invest in an ELSS Fund.
ELSS being an Equity Linked Tax Saving Mutual Fund, it should be used keeping in mind the risks that are associated with Equity Linked Products.
You can mitigate the risk associated with ELSS by investing and remaining invested for a long period. You shouldn’t invest in equity products if you have a Short Investment Horizon. With Long Investment Horizon, one can generate 12 – 15% CAGR or Compounded Annual Growth Rate on their Equity Mutual Fund Investments.
And if you withdraw less than a Lakh per financial year, then you do not have to pay any LTCG or Long Term Capital Gains Tax.
We would suggest our readers always use Direct Mutual Funds, as the Expense Ratio of a Direct Mutual Fund will always be lower than that of a Regular Mutual Fund.
Dividend and Dividend Re-investment options should also be avoided. As taking out monthly dividends severely hamper the effect of compounding and your investment is not able to grow. And Dividend Re-investment increases your transaction cost and extends the lock-in period every time the dividends get re-invested.
Direct – Growth Mutual Funds are the best option when it comes to ELSS.
Who Should Invest in a PPF Account?
If you want a very Low Risk, Tax Saving Instrument which got the backing of the Government and if you are satisfied with the returns associated with Low-Risk investment vehicles and you will not need your invested capital for at least 15 Years then you Should Invest in a PPF Account.
PPF being a Government-Backed Saving Scheme, is considered very safe for investing. But with the safety comes the low returns, compared to ELSS Funds.
As PPF is a EEE rated investment product, you do not have to pay any Tax when withdrawing your Investment Principal + Interest.
The aim of the Government behind PPF was Retirement Savings. So if your age is 45 Years and you will be retiring at the age of 60, then you should consider PPF as a viable Tax Saving Instrument.
At the moment of writing this article, the Interest Rate of PPF is at 7.10%. Even if we consider an Interest Rate of 6% each year for 15 Years, reaching your annual tax saving quota of Rs. 1.5 Lakh using PPF might fetch you a handsome amount of money at the end of the 15th Year.
You want to see the ‘Number’s Game’? Ok, as you wish!
How much will I earn investing Rs. 1.5 Lakh each year in a PPF Account?
If you invest Rs. 12,500/- per month in a year, then you are investing Rs. (12,500 x 12) = Rs. 1.5 Lakh each year for 15 Years and you are earning only a mere 6% on your investment each year. Then on –
In the 1st year, you would have earned a Total Interest of Rs. 4,831/- on your Invested Capital of Rs. 1.5 Lakh, taking your Total Balance to Rs. 1,54,831/-.
In the 5th year, you would have earned a Total Interest of Rs. 1,22,800/- on your Invested Capital of Rs. (Rs. 1.5 Lakh x 5 Years) = 7.5 Lakhs, taking your Total Balance to Rs. 8,72,800/-.
In the 10th year, you would have earned a Total Interest of Rs. 5,40,803/- on your Invested Capital of Rs. (Rs. 1.5 Lakh x 10 Years) = 15 Lakhs, taking your Total Balance to Rs. 20,40,803/-.
In the final year, you would have earned a Total Interest of Rs. 13,53,855/- on your Invested Capital of Rs. (Rs. 1.5 Lakh x 15 Years) = 22.5 Lakhs, taking your Total Balance to Rs. 36,03,855/-.
In the 15th year, your Annual Interest was Rs. 2,00,059/- which is more than your Annual Deposit. This is the Magic of Compounding, which can only be achieved through Long Term Investing.
And you will be able to withdraw this Rs. 36.03 Lakhs Totally Tax-Free after the 15th year. And here is the total calculation.

We suggest to our readers that if your retirement is in less than 15 Years then you should consider ELSS for Tax Savings rather than PPF. Large Cap ELSS Funds which invest in the big, established companies should be on your radar.
Conclusion
It is always good to invest with a Goal in mind.
If your goal is Tax Savings, then the return on that investment should always be your second priority. Mixing Tax Savings with Investments is the root of this confusion.
But unfortunately, most of us are not able to see each goal separately. If you can, then try to keep Investment and Tax Savings separate.
Using Tax Saving Instruments, you are already saving Rs. 1.5 Lakh each year in the form of tax deductions, which if invested properly, can generate a lump sum. Do you still need a hefty return on your Tax Saving Investments?
As it is a subjective view, and we always try to present facts, we won’t drag this point long.
Age plays a very important role when choosing an Investment Vehicle. Follow the simple rule of ‘The More You Age, The More Risk-Averse Your Investment Should Be’ and you will be financially healthy.

At a young age, you are more capable of recovering your losses if your investment decisions went down the hill. The older you get, the hard it becomes to recover.
A long lock-in period is not always bad. It helps you to remain disciplined and not touch your invested money for a certain period. This helps your investment compound without any disturbance.
Then,
Should I invest in ELSS or PPF?
If you are a relatively young, Risk-Taking Investor, who doesn’t like a long Lock-in period on their Tax Saving Investments and understands the risk of investing in an Equity Mutual Fund, then you should invest in an ELSS Fund. Rest should stick with PPF.
That was it.
So, we hope after reading this whole article, your confusion on ELSS vs PPF is gone. But if you still have any questions, do let us know in the comment section below and we will try to answer them.
Do share this article with your friends and family if they are also confused about ELSS and PPF.
And also – Sharing is Caring! 🥰
And as usual, in the end, we will say –
Good Luck and Happy Investing! 😊
Disclaimer: The views, investment tips, presumptions, and calculations expressed on Moneypremier.net are not of the website or its management. This article is for Educational Purposes only. Moneypremier.net advises users to check with certified experts before making any financial decisions.
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