ELSS Vs PPF Vs FD: Where should you invest and why?

Retail investors often stay in a dilemma when they have to decide between choosing one investment option over another. Although it is recommended to curate a portfolio comprising a number of investment alternatives ranging from equity and debt to precious metals, there could still be occasions when you are compelled to get selective about your choice of investments. Three popular investment options for retail investors are ELSS (equity linked savings scheme), PPF (public provident fund) and FDs (fixed deposits). Let us compare their unique features to evaluate which one could be better than the others. ELSS vs PPF vs FD: Which ones to choose? ELSS: For the uninitiated, Equity Linked Savings Schemes or ELSS are a form of mutual funds which allow deduction under section 80C (under the old tax regime) upto ₹1.5 lakh a year. These mutual funds invest in equity and have a lock-in period of three years. According to the Sebi's categorisation of mutual fund schemes, ELSS mutual funds are supposed to invest a minimum of 80 percent of their assets in stocks in accordance with Equity Linked Saving Scheme, 2005. PPF: At the same time, Public Provident Fund is a government-backed savings scheme which gives assured returns. The current interest rate offered by PPF stands at 7.1 percent per annum. Just like ELSS, investment in PPF is allowed to be deducted upto ₹1.50 lakh in a year under section 80C of Income Tax Act (old tax regime). PPF has a longer lock in period of 15 years. Fixed deposits: FDs are also a form of investment schemes offered by banks offering slightly lower interest rates (around 6-6.5 per cent a year). They do not offer any tax deduction and their earnings (interest) are taxable. However, these schemes have no lock in period. Tax deduction In the new tax regime, deductions are not permitted for investing in ELSS and PPF, then should investors stay away from these investments? Experts do not recommend an investment to be seen only through the lens of tax-saving. “Under the new tax regime, no investments are needed to save any tax. That resulted in a reduction in the ELSS funds inflow as many mid-range earners opted for the new tax regime, which is also the default option. But as far as investments are concerned, one should not do this only for saving taxes but to fulfil thefinancial goals. ELSS is still good for those who want to invest in the equity asset class as well as want to havediscipline in investing. As investments done in ELSS can not be redeemed in 3 years, it makes investors stay invested in equity at least for 3 years to make some profits,” says Preeti Zende, founder of Apna Dhan Financial Services. Higher returns When it comes to returns, investment in PPF scores over FDs for two reasons. One. it offers 7.1 percent a year against 6-7 percent interest given by fixed deposits. Read this Livemint article to know more about the latest interest rates offered by top 8 banks on their term deposits. Meanwhile, ELSS is supposed to be even better than the other two options. As an overall category, ELSS mutual funds have delivered an average return of 17.10% per annum in past three years, shows Morning Star data (as on 31 Oct 2025). The corresponding data for 1 and 5 years are 3.41% and 20.99%, respectively. “While PPF currently offers a fixed 7.1% return with a 15-year lock-in and FDs provide around 7% with a 5-year lock-in, ELSS funds—linked to equities—have delivered an average 5-year CAGR of over 20%. Despite being market-linked, their shorter 3-year lock-in and potential for long-term wealth creation make them attractive, particularly for younger investors,” says Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance. “Mutual funds also offer diversification, professional management, and liquidity that direct equity or fixed-income options lack. Interestingly, even with ₹1,600 crore of outflows in Q1 FY26 due to the growing preference for the new tax regime, ELSS remains the most efficient tool for investors who stay under the old regime and seek growth with tax savings,” she adds. Meanwhile, Ms Zende asserts that it is not fair to even compare ELSS with PPF as both of them belong to different asset classes, and the need of them in the portfolio is also different. Note: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment related decision. For all personal finance updates, visit here