Every year during tax-planning season, investors face the same question: where should I invest to save tax under Section 80C?

The three most popular options are:

• ELSS (Equity Linked Savings Scheme)
• PPF (Public Provident Fund)
• NPS (National Pension System)

Each has its own strengths. This post compares them across every factor that matters — so you can choose based on your goals, not just tax savings.

The Basics

ELSS — Equity Linked Savings Scheme

ELSS is a type of equity mutual fund that qualifies for tax deduction under Section 80C. It invests primarily in stocks and has a 3-year lock-in period — the shortest among all 80C investments.

PPF — Public Provident Fund

PPF is a government-backed savings scheme that offers guaranteed returns. It has a 15-year lock-in period (with partial withdrawal allowed from the 7th year). The interest rate is set by the government every quarter.

NPS — National Pension System

NPS is a retirement-focused investment that invests in a mix of equity, corporate bonds, and government securities based on your chosen allocation. The money is locked in until you turn 60 (with some exceptions). It offers an additional tax deduction of ₹50,000 under Section 80CCD(1B), over and above the ₹1.5 lakh limit of 80C.

Head-to-Head Comparison

Returns: Who Wins?

ELSS

ELSS funds invest in equities, which have historically delivered the highest returns among asset classes in India. Over 10-15 year periods, well-chosen ELSS funds have delivered 12-15% CAGR. However, returns are not guaranteed and can be negative in bad years.

PPF

PPF currently offers 7.1% per annum, compounded annually. This rate is revised quarterly by the government but has remained relatively stable in the 7-8% range in recent years. The return is guaranteed — you know exactly what you will get.

NPS

NPS returns depend on your asset allocation. If you choose a higher equity allocation (up to 75%), historical returns have been in the 9-12% CAGR range. With a conservative allocation (more debt), returns are closer to 8-9%.

Verdict: ELSS has the highest return potential but with higher risk. PPF offers certainty. NPS sits in between.

Tax Treatment: The Full Picture

ELSS

• Investment: Deductible under Section 80C (up to ₹1.5 lakh)
• Returns: Long-term capital gains (LTCG) taxed at 12.5% for gains exceeding ₹1.25 lakh per year
• Tax status: EET (Exempt-Exempt-Taxed)

PPF

• Investment: Deductible under Section 80C (up to ₹1.5 lakh)
• Interest: Fully exempt from tax
• Maturity: Fully exempt from tax
• Tax status: EEE (Exempt-Exempt-Exempt) — the most tax-efficient

NPS

• Investment: Deductible under Section 80C (up to ₹1.5 lakh) + additional ₹50,000 under Section 80CCD(1B)
• Withdrawal at 60: 60% of the corpus can be withdrawn tax-free. The remaining 40% must be used to buy an annuity, and the annuity income is taxed as per your income slab
• Tax status: EET (partially)

Verdict: PPF is the most tax-efficient (fully exempt). ELSS has a small tax on gains. NPS has the highest total deduction (₹2 lakh) but the annuity income is taxable.

Lock-in and Liquidity

This is where the three differ dramatically:

ELSS: 3 Years

Each ELSS investment (whether lump sum or SIP) has a 3-year lock-in from the date of investment. After 3 years, you can redeem freely. If you do a monthly SIP, each month’s investment has its own 3-year lock.

This is the shortest lock-in among all Section 80C investments.

PPF: 15 Years

Your PPF account matures after 15 years. Partial withdrawals are allowed from the 7th year, but only up to 50% of the balance at the end of the 4th year. Premature closure is allowed after 5 years only under specific conditions (serious illness, higher education, change of residency status).

NPS: Until Age 60

NPS is designed for retirement. Your money is essentially locked until you turn 60. Premature withdrawal is allowed after 3 years of contribution, but only for specific reasons (education, marriage, home purchase, medical treatment), and only up to 25% of your own contributions.

Verdict: ELSS offers the most flexibility. PPF is rigid but allows partial withdrawals after 7 years. NPS is the most restrictive.

Who Should Choose What?

Choose ELSS If:

• You have a long investment horizon (5+ years, ideally 7-10)
• You are comfortable with equity market volatility
• You want the shortest lock-in (3 years)
• You want the potential for highest returns
• You already have debt exposure through EPF, PPF, or fixed deposits

Choose PPF If:

• You want guaranteed, safe returns with zero market risk
• You are looking for a long-term savings vehicle (15+ years)
• You want completely tax-free returns
• You prefer stability over growth potential
• You are in a high tax bracket and want EEE tax treatment

Choose NPS If:

• You are planning specifically for retirement
• You want the additional ₹50,000 deduction under 80CCD(1B)
• You are comfortable with a long lock-in until age 60
• You want a balanced portfolio of equity and debt managed by professional fund managers
• You are disciplined about not touching retirement money

Can You Invest in All Three?

Absolutely. Many investors use a combination:

• ELSS for tax savings with equity exposure and flexibility
• PPF for a safe, guaranteed component and tax-free returns
• NPS for the additional ₹50,000 deduction and retirement planning

A common split for someone investing ₹2 lakh per year for tax savings:

• ₹50,000 in ELSS (equity exposure, 3-year lock-in)
• ₹50,000 in PPF (guaranteed, tax-free returns)
• ₹50,000 in NPS (additional 80CCD deduction, retirement corpus)
• Remaining ₹50,000 through EPF or other 80C investments

Key Takeaways

• ELSS offers the highest return potential with the shortest 3-year lock-in, but returns are not guaranteed
• PPF offers guaranteed, fully tax-free returns with a 15-year lock-in
• NPS offers an additional ₹50,000 deduction and is best for retirement planning, but money is locked until 60
• PPF has the best tax treatment (EEE); ELSS and NPS gains are partially taxable
• You do not have to choose just one — a combination based on your goals and risk tolerance works best
• Start with your goal: if it is flexibility, choose ELSS; if it is safety, choose PPF; if it is retirement, choose NPS

Tax saving should not be an afterthought. Plan your 80C investments at the beginning of the financial year, align them with your financial goals, and let them work for you all year round — instead of rushing in March.