Saving tax is an important aspect of wealth generation and meeting financial goals. The Income Tax Department offers various ways to reduce tax liability by offering tax deductions on certain expenses and investments. Section 80C of the Income Tax Act, 1961, has a list of investments that offer tax deductions up to Rs.1.5 lakh per year. Of these, ELSS, NPS, and PPF are the most common investments. 

Here is a comparison of these investments to help you make a decision.

Points Covered:

  • What are NPS, PPF, and ELSS?
  • A comparison of the benefits and limitations of NPS, ELSS, and PPF  
  • How to use these investment options practically and the key takeaways
  • FAQs 

Understanding NPS, PPF, and ELSS

Before we compare the three, let’s look at what these instruments offer:

1. NPS or National Pension Scheme

The National Pension Scheme is issued by the Government as a social security initiative. 

A pension is a sum of money that is created during your employment years by regular contribution. Once you retire, you receive periodic payments from this fund. Hence, you can live a financially independent life despite having no employment.

The NPS is offered to people working in all sectors of the economy – private, government, unorganized, etc. Under the NPS scheme, you invest a fixed amount every year towards your pension fund and receive a monthly pension post-retirement. Your pension account can be ported across jobs and locations. 

Once you deposit the money to the NPS account, the fund manager of the NPS invests the corpus into different asset classes like equities, debt, etc. You receive returns based on the performance of the fund. 

2. PPF or Public Provident Fund

To mobilize small savings and help people build a corpus for their future, the Ministry of Finance had launched PPF in 1968. This is a fixed-return, long-term investment instrument that offers attractive interest rates. There is an upper limit to the amount that you can invest in PPF – Rs.1.5 lakh per year. You can open a PPF account with an authorized bank or post office.

3. ELSS or Equity Linked Savings Scheme

ELSS funds are diversified equity mutual funds offering tax benefits under Section 80C and a lock-in period of three years. The performance of ELSS funds is linked to the market and based on the risk exposure and investment approach, the fund can generate good returns.

NPS vs. ELSS vs. PPF

Tax Deduction on the invested amount Up to INR 1,50,000 under Section 80C Up to Rs. 50,000 under Section 80CCD(1B) Up to INR 1,50,000 under Section 80C  Up to INR 1,50,000 under Section 80C
Taxability of the Maturity Amount  Partially Taxable – 60% withdrawal amount

Taxable – Annuity pension income

Taxable – Capital Gain  Exempt
Lock-in Period Up to Retirement 3 Years 15 Years
Risk Involvement Risky as Market Linked Risky as Market Linked Safe as Govt-backed
Minimum and Maximum Amount of Investment Tier 1 Minimum Rs 1,000 and Tier 2 Rs 250

No Maximum Limit

Minimum Rs 500 (for most ELSS schemes)

No Maximum Limit

Rs 500 Min and Rs 1,50,000 Maximum in one year

How to Use PPF, ELSS, and NPS – Practical Application

Since each of these instruments has specific features, you need to choose one based on your risk tolerance, investment horizon, and financial goals. Here are some pointers to help you choose:

1. NPS

NPS offers a monthly pension only after retirement. The returns are market-linked. There are two types of NPS accounts:

  1. Tier-I: Here are some features of the NPS Tier-I account:
    1. This is the default NPS account where withdrawals are not permitted and the investment is locked in until the age of 60 years. 
    2. The minimum investment amount is Rs.500 per annum and there is no maximum limit. 
    3. However, you need to make at least one investment every year. 
    4. Once you retire, you can withdraw up to 60% of the accumulated amount. The remaining 40% is used to buy annuities to provide a monthly pension to you. 
    5. On maturity, the entire corpus is exempt from tax.
  2. Tier-II: Here are some features of the NPS Tier-II account:
    1. You can open a Tier-II account only if you have an existing Tier-I account.
    2. There is no lock-in in this account. You can deposit and withdraw as per your needs.
    3. The minimum investment amount for account opening is Rs.1000 and subsequent contributions need to be Rs.250+. It is not mandatory to make a contribution every year.
    4. There is no tax benefit on the invested amount. Also, if you withdraw the entire amount on maturity, the corpus is added to your taxable income and taxed as per the applicable income tax slab.

You can check the amount of return on your NPS investment using the NPS Calculator.

2. PPF

When you invest in a PPF account, the invested amount is locked in for 15 years. You receive interest that is credited to you along with the invested capital on maturity. Therefore, it is ideal for investors with low risk tolerance and an investment horizon of at least 15 years. Here are some things that you should know about a PPF account before investing:

  • The current rate of interest is changed by the government mostly on a yearly basis if they feel the need to do so.
  • The account matures in 15 years. You can withdraw the entire amount or extend in blocks of five years.
  • The extension of a PPF account can be done with or without additional contribution.
  • There are some premature withdrawal rules as follows:
    • Post-completion of six years, you can withdraw up to 50% of the balance accumulated during the first four years or the immediately preceding year, whichever is lower
    • If you have not completed six years, then you can take a loan on the accumulated amount.
  • The minimum investment amount is Rs.500 and the maximum is Rs.1.5 lakh per year. You have to make at least one deposit every year to avoid the account going dormant.
  • The interest is calculated on the lowest balance between the 5th and the last day of every month.
  • Investments and returns are fully tax-free.

You can check the amount of return on your NPS investment using the PPF Calculator.

3. ELSS funds

ELSS funds are diversified equity funds. However, they have a lock-in of three years. This is the lowest lock-in across all investments under Section 80C. Each ELSS fund has a different risk level and investment approach. Hence, before investing in an ELSS fund, it is important to read the scheme-related documents carefully. Here are some things to keep in mind before investing in an ELSS fund:

  • The returns offered by an ELSS fund can vary based on its risk exposure and asset composition. While these funds need to mandatorily invest a sizeable portion of the corpus into equity and equity-related instruments, the fund manager can choose the types of stocks to invest in. Hence, it is important to check the asset composition and investment approach carefully before investing.
  • You cannot redeem the units of an ELSS fund before the completion of three years from the date of purchase. If you have invested via a SIP, then the lock-in date will vary for each installment as it will be calculated as three years from the date of the installment.
  • There is no limit on the amount that you can invest in an ELSS fund.
  • Investments of up to Rs.1.5 lakh per annum are eligible for tax deduction under Section 80C. However, the long-term capital gains (LTCG) are taxed as follows:
    • LTCG up to Rs.1 lakh exempt from tax
    • LTCG exceeding Rs,1 lakh to be taxed at 10% without indexation benefits
  • Dividends received from these funds are also taxable. They are added to your annual income and taxed as per the applicable income tax slabs. 

Use ELSS Calculator to know the return and investment amount.

Key Takeaways

  • NPS, PPF, and ELSS have some fundamental differences.
    • NPS provides a monthly pension after your retirement
    • PPF offers a lump-sum amount along with interest upon maturity.
    • ELSS provides market-linked returns whenever you redeem the units after a minimum period of 3 years.
  • PPF has the lowest risk exposure since the returns are assured. However, NPS and ELSS offer market-linked returns making them higher risk investments.


Q1. How to open an NPS and PPF Account?

NPS accounts can be opened in two ways:

  1. Offline – by visiting a Point of Presence or PoP and submitting an application form along with your KYC documents
  2. Online – by visiting If you link your Aadhaar, PAN, and mobile number, then the account can be opened in no time.

PPF accounts can also be opened in two ways:

  1. Offline – by visiting the nearest Post Office or bank branch authorized to open PPF accounts.
  2. Online – by using internet banking of the authorized banks.

Q2. What investment choices do you have for NPS?

NPS provides Active Choice and Auto Choice options. Under the active choice, you can select which asset allocation percentage to apply. Under the auto choice, funds are automatically allocated.

Q3. What is the withdrawal facility under a PPF account?

You can partially withdraw money from PPF accounts after 6 years. Maximum 50% of the amount can be withdrawn prematurely. 

Q4. How to withdraw money under the NPS account?

Upon reaching 60 years, you can withdraw 60% of the amount as a lump sum. You can also prematurely withdraw under certain conditions.

Happy Investing! 

Disclaimer: The views expressed in this post are that of the author and not those of Groww