When it comes to tax-saving investments, two options stand out—Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF). While ELSS offers market-linked returns with a higher growth potential, PPF provides stable, tax-free returns with no market risk.
But which one should you choose for long-term wealth creation? The answer isn’t as simple as picking the one with the highest returns. Investment decisions should be based on financial goals, risk tolerance, and portfolio diversification needs.
Let’s analyse the historical performance of both options and determine when PPF can still make sense despite ELSS outperforming it in most cases.
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PPF Performance Over 15 Years
PPF has been a go-to investment for risk-averse investors looking for guaranteed, tax-free returns. Below is a detailed performance analysis of investing ₹1.5 lakhs annually in PPF over the last 15 years:
Corpus Growth in PPF
| Financial Year | Number of Months | Interest Rate | Deposit (in ₹) | Interest (in ₹) | Corpus at Period End (in ₹ Lakhs) |
|---|---|---|---|---|---|
| 2009-10 | 12 | 8.1% | 150,000 | 12,075 | 1.62 |
| 2010-11 | 12 | 8.0% | 150,000 | 24,966 | 3.37 |
| 2011-12 | 8 | 8.0% | 150,000 | 25,976 | 5.13 |
| 2011-12 | 4 | 8.7% | – | 14,792 | 5.27 |
| 2012-13 | 12 | 8.7% | 150,000 | 58,969 | 7.36 |
| 2013-14 | 12 | 8.7% | 150,000 | 77,150 | 9.64 |
| 2014-15 | 12 | 8.7% | 150,000 | 96,912 | 12.11 |
| 2015-16 | 12 | 8.7% | 150,000 | 118,393 | 14.79 |
| 2023-24 | 12 | 7.1% | 150,000 | 286,867 | 43.27 Lakhs |
Final Corpus (2023-24): ₹43.27 lakhs with tax-free withdrawal after 15 years.
ELSS Performance Over 15 Years
Unlike PPF, ELSS funds invest in equity, which have historically delivered higher returns. However, they come with market risk and volatility. Below is a detailed comparison of various ELSS funds over the last 15 years:
Corpus Growth in ELSS Funds
| S. No. | Name of the Fund | Post Tax Corpus (in ₹ Lakhs) | As a Multiple of PPF Corpus |
|---|---|---|---|
| 1 | Quant ELSS Tax Saver Fund (G) | 134.7 | 3.1 |
| 2 | Bank of India ELSS Tax Saver-Reg (G) | 105.6 | 2.4 |
| 3 | Bandhan ELSS Tax Saver Fund-Reg (G) | 101.8 | 2.4 |
| 4 | DSP ELSS Tax Saver Fund-Reg (G) | 100.5 | 2.3 |
| 5 | Canara Rob ELSS Tax Saver-Reg (G) | 92.3 | 2.1 |
| 6 | Invesco India ELSS Tax Saver Fund (G) | 91.2 | 2.1 |
| 21 | LIC MF ELSS Tax Saver-Reg (G) | 69.7 | 1.6 |
The best-performing ELSS fund (Quant ELSS) generated ₹134.7 lakhs—3.1 times more than PPF! Even the worst-performing ELSS fund (LIC ELSS) generated ₹69.7 lakhs—still higher than PPF’s ₹43.27 lakhs.
When Should You Still Consider Investing in PPF?
Despite ELSS delivering higher returns, PPF remains relevant in certain scenarios:
1. If You Need a Stable Debt Component in Your Portfolio
- Equities are volatile, and a well-balanced portfolio should include both equity and debt.
- Most financial advisors do not recommend keeping more than 90% of investments in equity.
- After exhausting EPF contributions, PPF can be a safe debt allocation option.
2. When Comparing PPF to Debt Funds & Bonds
- PPF offers tax-free, risk-free returns (7.1% p.a.), while corporate bonds and debt funds carry credit risk.
- A bond or debt fund must yield at least 10.35% p.a. (pre-tax, assuming a 30% slab) to match PPF’s tax-free return.
- Most high-yield bonds and debt funds come with higher risk and capital erosion concerns.
3. PPF Encourages Long-Term Investment Discipline
- PPF has a 15-year lock-in, which discourages premature withdrawals and ensures disciplined investing.
- ELSS has a 3-year lock-in, making it easier for investors to redeem funds early during market downturns, leading to lower long-term gains.
Key Takeaway: Asset Allocation Matters
While ELSS offers superior long-term returns, it is crucial to maintain a balanced asset allocation. No financial advisor would recommend putting 100% of your investments into equity, as diversification reduces risk and optimises returns.
Here’s a simple decision matrix to help you choose:
| Criteria | Choose ELSS | Choose PPF |
|---|---|---|
| Risk Tolerance | High (Market-linked) | Low (Stable & Guaranteed) |
| Investment Horizon | 5+ years | 15+ years |
| Tax Benefits | Under 80C, LTCG (10% tax above ₹1L gains) | Under 80C, completely tax-free |
| Returns | 12-15% (Historically) | 7-8% (Stable) |
| Liquidity | Redeem after 3 years | Locked for 15 years |
| Best For | Wealth creation & aggressive investors | Debt allocation & conservative investors |
Final Verdict: ELSS or PPF?
The choice between ELSS and PPF depends on your personal financial goals:
If your goal is wealth creation, you can allocate a higher portion to ELSS while keeping some exposure to safe instruments like PPF or EPF.
If you are risk-averse and prefer stable, tax-free returns, PPF remains an excellent choice as a debt component in your portfolio.
A well-balanced portfolio should ideally include both ELSS and PPF in the right proportion. Make your investment decisions based on your risk appetite, financial goals, and long-term planning needs—not just historical returns.
Consult a qualified financial advisor before making a decision.
