PPF vs ELSS: What gives more returns? Deciding factors decoded here

Public Provident Fund (PPF) vs ELSS (Equity-Linked Savings Scheme): Saving tax and earning higher returns on investments are two of the most important financial goals we pursue every year. Both PPF and ELSS can help you in saving income tax through investment under Section 80C of the Income Tax Act. But, what will give better returns? Well, this is a subjective question as the end returns would depend on a number of factors. 

Vikas Puri, Vice-President, Quant Capital, tells Zee Business TV that PPF in India is following the global trend. And if the state of the economy grows better in future, the rates offered by the government on PPF may come down. In contrast, if the economy grows and markets perform better, the returns on ELSS may be higher. 

The ELSS returns are linked to the performance of the equity market. So, if the market performs poorly, your ELSS return may be less than what you may expect initially, says Puri. In the case of PPF, however, the rate of return is assured quarterly. 

PPF vs ELSS: Interest rates
Currently, the government is offering 8% interest on PPF investment. This is revised by the government quarterly. The state of the economy plays an important role in the determination of the interest rate. The ELSS returns depend on the markets. Puri says, in the short-term, ELSS may give poor returns if the market performs badly. However, in the time-frame of 5-10 years, ELSS investment has given better returns. 

PPF vs ELSS lock-in period
There is a lock-in period of 15 years on PPF investment. ELSS also has a lock-in period of three years.

Puri says PPF is an assured return scheme of the government, while ELSS is offered by Mutual Fund houses and the money is invested in shares. In contrast to normal Mutual Funds, ELSS has a three-year lock-in period and returns are not fixed.