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Investing

ELSS vs PPF: Lock-in, Tax Treatment and Returns

ELSS has a 3-year lock-in and taxable market-linked gains; PPF runs 15 years at 7.1% (Jul–Sep 2026) with tax-free maturity.

VD

Written by Vikram Desai

Published 3 November 2026·6 min read

On this page8 sections
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ELSS locks your money for three years and gives market-linked returns, with long-term gains above ₹1.25 lakh a year taxed at 12.5%. PPF runs for 15 years at a government-set rate, 7.1% for July to September 2026, and the maturity amount is tax-free. Both count toward the same ₹1.5 lakh deduction, and only under the old tax regime.

ELSS vs PPF at a glance

Feature ELSS PPF
What it is Equity mutual fund, at least 80% in shares Government savings scheme (PPF Scheme, 2019)
Lock-in 3 years from allotment of each purchase 15 full financial years after the year of opening
Returns Market-linked, not guaranteed Rate set by the government each quarter; 7.1% for Jul–Sep 2026
Minimum ₹500, in multiples of ₹500 ₹500 a year
Maximum No cap on investment; deduction capped ₹1,50,000 a financial year
Deduction (old regime) Within the ₹1,50,000 limit Within the same ₹1,50,000 limit
Tax on exit 12.5% on long-term gains above ₹1,25,000 a year Interest and maturity exempt
Early access None before 3 years (1 year for a nominee after death) Loan from year 3, partial withdrawal from year 7

Lock-in and liquidity

Paragraph 3(d) of the Equity Linked Savings Scheme, 2005 requires each ELSS investment to be held for three years from the date of allotment. With a SIP, each instalment has its own three-year clock. After that, you can redeem any time, and SEBI requires the fund to pay within three working days. Our page on the ELSS lock-in period works through SIP dates.

A PPF account matures after 15 years counted from the end of the financial year in which you opened it. You can reach the money earlier in limited ways:

ItemDetails
Loanfrom the third financial year to the sixth, up to 25% of the balance at the end of the second year before you apply.
Partial withdrawalonce a year after five years from the end of the opening year, up to 50% of a set balance.
Premature closureafter five years, only for serious illness, higher education or a change in residency status, with interest cut by 1%.
Extensionin blocks of five years after maturity, with or without fresh deposits.

The full rules are in our guide to PPF withdrawal, loan and extension.

How returns are set

ELSS returns depend on the share prices of the companies the fund holds. The NAV moves daily and can fall below what you invested, even after three years. The fund also charges an annual expense ratio, which is deducted from the NAV. No ELSS promises a return. Our ELSS tax-saving funds page covers individual schemes.

PPF pays the rate the Ministry of Finance notifies each quarter. It has been 7.1% in every quarter since April 2020, and the rate for July to September 2026 was left unchanged. Rates for October to December 2026 are due around 30 September. Interest is worked out on the lowest balance between the fifth and the last day of each month, and credited at the end of the financial year. Depositing before the 5th of April earns interest for the whole year.

At 7.1%, ₹1,50,000 deposited at the start of each year for 15 years would grow to about ₹40,68,209, of which ₹22,50,000 is your money. That assumes the rate stays at 7.1% throughout, which is not guaranteed. The PPF calculator lets you change the rate, and the SIP calculator shows how an ELSS SIP could grow at a return you choose.

Tax at entry, growth and exit

From tax year 2026-27 the Income-tax Act, 2025 applies. Returns for FY 2025-26 are still filed under the Income-tax Act, 1961, where the same benefits sat in Sections 80C, 10(11) and 112A.

Stage ELSS PPF
Investment, old regime Deduction under Section 123, Schedule XV paragraph 1(m) (old Section 80C) Deduction under Section 123, Schedule XV paragraph 1(e) (old Section 80C)
Investment, new regime No deduction No deduction
While invested No tax on growth until you sell; IDCW payouts taxed at your slab rate Interest not taxed
On exit Long-term gains taxed at 12.5% above ₹1,25,000 a year under Section 198 (old Section 112A) Payment from the fund exempt under Schedule II (old Section 10(11))

The ₹1,25,000 exemption is shared with gains from listed shares and other equity funds in the same year. The capital gains calculator estimates the tax on an ELSS redemption.

Investment limits

Section 123 caps the deduction at ₹1,50,000 a year for all Schedule XV items combined. That limit covers ELSS, PPF, life insurance premiums, your EPF contribution, children’s tuition fees, home loan principal and more. If your EPF contribution already uses most of it, there is little room for either ELSS or PPF as a tax saving.

PPF has its own hard cap of ₹1,50,000 a financial year, which includes deposits in any minor’s account you hold as guardian. You can have only one PPF account in your name, and joint accounts are not allowed. ELSS has no investment cap; anything above ₹1,50,000 simply earns no deduction.

Old vs new regime relevance

The new tax regime is the default under Section 202 of the 2025 Act (Section 115BAC for FY 2025-26). It does not allow the Section 123 deduction. If you are on the new regime, neither product saves tax at entry. The choice then turns on what each does after entry: PPF still gives tax-free interest and maturity, while ELSS gains remain taxable above the exemption and the three-year lock-in still applies.

If you are on the old regime, the same ₹1,50,000 limit can be split between the two in any proportion. Our old vs new tax regime page helps decide which regime suits your income. For NPS as a third option, see NPS vs PPF.

What each suits

  • PPF: money you will not need for 15 years, where you want a known rate and no market risk.
  • ELSS: money you can leave in equities for at least three years and can watch fall in value without selling.

This page explains the rules and does not recommend either product. For a large or complex tax decision, a tax adviser can check your full position.

Frequently asked questions

Which has a shorter lock-in, ELSS or PPF?

ELSS. Each ELSS purchase is locked for three years, while a PPF account runs for 15 financial years after the year of opening.

Can I invest in both ELSS and PPF?

Yes. In the old regime both count toward the same ₹1,50,000 deduction limit, so the combined deduction cannot exceed that.

Is PPF maturity tax-free?

Yes. Interest and the maturity amount are not taxed.

Is ELSS return guaranteed?

No. ELSS is an equity mutual fund, and its value can go down as well as up.

What is the PPF interest rate now?

7.1% a year for July to September 2026. The government announces the next quarter’s rate around 30 September 2026.

Do ELSS and PPF save tax under the new regime?

No deduction is allowed for either under the new regime. PPF interest stays tax-free regardless of the regime you choose.

Can I withdraw PPF before 15 years?

Partly. Loans are allowed from year three to six, partial withdrawals from year seven, and premature closure after five years for specified reasons.

Sources

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