ELSS, PPF, NPS and ULIPs: Which is the Better Option to Invest for Tax Saving?

Every tax-paying citizen wants to make as many savings in tax as possible. The Indian Government has given its citizens some tax provisions which help them in making tax savings. There are some tax-saving instruments mentioned under Section 80C of the Income Tax Act. The options under this section call for investment in PPF, ELSS, NPS, and ULIPs. The maximum deduction that can be availed is INR 1.5 lacs.

An individual can choose the avenue for tax saving that is most suitable to him.

Equity Linked Saving Scheme (ELSS) ELSS is a mutual fund category and can aid you in tax savings. In mutual funds, ELSS is categorized under equity since 65% of the money invested in it goes towards equity investment. It has a minimum lock-in period of 3 years and allows high returns.


Public Provident Fund (PPF) This is a long-term instrument that benefits both investment and saving. Contributions towards PPF guarantee a rate of interest that is earned on them.
National Pension Scheme (NPS) This is a scheme for creating your retirement corpus, i.e., your pension for your old age. The regulatory authority for this scheme is Pension Fund Regulatory and Development Authority. There are two types of accounts under NPS – Tier I and Tier II. The Tier I account can be exited only when an individual attains 60 years of age.
Unit Linked Insurance Policies (ULIPs) These insurance policies are dual-purpose instruments– investment as well life insurance coverage. A part of the premium is invested in the insurance premium, while the other amount is invested in assets.

Factors affecting your investment

When investing your income, you need to think of certain things that can affect your investment. Some of the factors that can affect your income are:

Creation of wealth: The decision of investment would depend on what are your financial goals. Like NPS is a good retirement plan while ELSS and ULIPs are suitable for saving children’s education.

Risk: Investments always attract risk. PPF returns are guaranteed, while in ULIPs, NPS, and ELSS, returns are dependent on market conditions.

Returns: Everyone desires good returns when investing. While making investments in any of these instruments, it should be kept in mind that return on ULIPs, ELSS, and NPS is linked to market factors. Hence, a certain amount of return cannot be expected of them. As for PPF, even though the interest on it is guaranteed, it can only be expected to yield a high return over a longer duration of time, say 5-10 years.


When you plan to invest in a Section 80C instrument, make sure you do it properly and per your needs. Only then will you achieve your financial goals as otherwise, the investment can go to waste. A judicious thing to do would be to have your desired investment alongside tax savings.