FD vs. PPF vs. ELSS: Where and why should you invest?

ELSS, PPF, and fixed deposits are three popular investing choices for individual investors. While PPF and fixed deposits (FDs) offer guaranteed returns to regular investors, ELSS exposes investors to equity. Here, we compare and contrast these three investment choices.

When they must choose between two investing options, retail investors frequently find themselves in a difficult situation. Even while it is advised to build a portfolio that includes a variety of investment options, such as debt, equities, and precious metals, there may be times when you must be picky about the investments you make.

PPF (public provident fund), FDs (fixed deposits), and ELSS (equity linked savings plan) are three well-liked investing choices for individual investors. To determine which of them might be superior to the others, let's compare their distinctive qualities.

FD, PPF, or ELSS: Which should I pick?

For those who are unaware, Equity Linked Savings Schemes, also known as ELSS, are mutual fund products that qualify for an annual deduction of up to ₹1.5 lakh under section 80C (the previous tax regime). These mutual funds have a three-year lock-in term and make equities investments.

ELSS mutual funds are required to allocate at least 80 percent of their assets to stocks in compliance with the Equity Linked Saving Scheme, 2005, as per the Sebi's classification of mutual fund schemes.

PPF: In addition, the Public Provident Fund is a government-supported savings plan that offers guaranteed returns. PPF now offers an annual interest rate of 7.1 percent.

Similar to ELSS, PPF investments may be deducted up to ₹1.50 lakh annually under section 80C of the Income Tax Act (previous tax system). PPF has a 15-year lock-in period, which is longer.

Banks also offer fixed deposits (FDs), which are investment plans with somewhat lower interest rates (about 6–6.5 percent annually). Their earnings (interest) are taxable, and they do not provide any tax deduction. These schemes don't have a lock-in period, though.

Deduction of taxes

Since ELSS and PPF investments are no longer eligible for deductions under the new tax regime, should investors avoid making these types of investments?

Experts advise against viewing an investment solely from the perspective of tax savings.

"No investments are required to save any tax under the new tax scheme. As a result, many mid-range incomes chose the new tax regime, which is also the default option, which reduced the inflow of ELSS funds. However, when it comes to investing, one should do so to achieve financial objectives rather than only to save taxes. Those who wish to invest in the equity asset class and who wish to practice investing discipline can still benefit from ELSS. According to Apna Dhan Financial Services founder Preeti Zende, investors must remain invested in equity for at least three years in order to generate any gains because ELSS investments cannot be redeemed inside that time frame.

Increased profits

PPF investments outperform FDs in terms of returns for two reasons. First, compared to fixed deposits, which offer interest rates of 6-7 percent annually, it offers 7.1 percent. To learn more about the most recent interest rates that the top 8 banks are offering on their term deposits, read this Livemint article.

In the meantime, ELSS is thought to be even superior to the other two choices.

According to Morning Star data, ELSS mutual funds as a whole have produced an average return of 17.10 percent annually over the last three years (as of October 31, 2025). For one and five years, the corresponding numbers are 3.41% and 20.99%, respectively.

"ELSS funds, which are linked to stocks, have produced an average 5-year CAGR of more than 20%, whereas PPF now gives a fixed 7.1% return with a 15-year lock-in and FDs offer about 7% with a 5-year lock-in. According to Rajani Tandale, Senior Vice President, Mutual Fund at 1 Finance, "they are appealing, especially for younger investors, because of their shorter 3-year lock-in and potential for long-term wealth creation, even though they are market-linked."

Additionally, mutual funds provide liquidity, expert management, and diversification that are absent from fixed-income or direct equity options. Interestingly, ELSS continues to be the most effective vehicle for investors who stick with the old system and want growth with tax savings, despite ₹1,600 crore in outflows in Q1 FY26 as a result of the growing preference for the new tax regime," she says.

According to Ms. Zende, it is unfair to even compare ELSS and PPF because they are in separate asset classes and have different needs in a portfolio.