ELSS is Equity Link Saving Scheme. It is an equity mutual fund scheme. Any mutual fund which is registered with SEBI can launch an ELSS and almost every fund house has an ELSS scheme. It is mandatory for fund houses to keep 80 percent in equity at all times. Compared to all other investment options, ELSS has the shortest lock-in period, of three years. Bank fixed deposits have a five-year lock-in period, insurance has a longer lock-in period and PPF has 15 years’ lock-in period. When you buy an insurance product, you buy just one insurance product. In ELSS, you can diversify your Rs 1,50,000 in 10-15 mutual fund scheme. Secondly, you don’t have to commit yourself. When you buy an insurance product, you have to commit that you will contribute, say Rs 1 lakh per annum, for 5-20 years. In ELSS there is nothing like it. Suppose you lose your job and don’t have an income, then you don’t have to contribute. So, it provides better flexibility. The lock-in is the lowest among all the tax-free available option. It is far more easy and convenient to invest. There are fewer strings attached to it. For an investment performance perspective, for a longer period of time, we haven’t seemed any instrument which comes closer to ELSS as far as performance is concerned.

When people invest in PPF, their investment horizon is 15 years and you have to invest on a continuous basis. In the equity market, for 15 years, you have at least two cycles of ups and downs. So the returns even out. If you look at a 10-year return in mutual funds, it is close to 10 percent which is 2 percent superior to PPF return. If you look at 15-year data, then the worst 15 years numbers are between 12-13 percent. If you see average data for 15 years, they are anything between 15-20 percent. You are getting double of what you are getting in PPF.

	ELSS	Pension Mutual Funds
Investment	ELSS is a type of mutual fund scheme where most of the fund corpus is invested in equities or equity-related products.	Pension Mutual Funds invest 40% of the money in equity and 60% in debt instruments. There are only 3 pension fund schemes: - Reliance Retirement Fund - Franklin Indian Pension Plan - UTI Retirement Benefit Pension Fund
Returns	Not fixed, depend upon the performance of equity market. However, in the past, ELSS has given average returns of 12-14%.	The returns in pension mutual funds are not fixed as it depends on the performance of the equity and debt market. Pension mutual funds have given an average return of 8-10% for a 5-year and 10-year period.
Lock-in Period	3 years	Until you reach the age of 58
Risk Factor	ELSS carries some risk. However, research suggests that ELSS has given positive returns over a longer period of time.	As the returns depend on the performance of market, there is some amount of risk attached with pension mutual funds.
Online Option	One can start an ELSS online.	One can invest in pension mutual funds online.
Liquidity	One can withdraw money from ELSS anytime after 3 years.	One cannot withdraw the funds before retirement. The standard retirement age is taken as 58 years.

One more challenging thing which people don’t appreciate is that in PPF, the rate of return is not fixed. It keeps changing on the basis the rate fixed by the government. The rate applies not only to your new contribution but also to your accumulated contribution. If the rate of interest goes from 8 percent to 7.9 percent, that will apply to whatever you have accumulated. The rates will come down further. It is not going to stop yet. If the government can borrow at 10-year G sec at 7.30 then why would they pay 7.80 or 7.90. The tax benefit and interest income are also tax-free. So, over a period of time, you will see PPF rate become more and more market linked.

If you look at the history of PPF, it is very interesting. The origin of PPF was that people who worked in the unorganised sector, who don’t have organized saving should invest in this kind of investment and secure their future. But it was completely hijacked by HNIs. There was a complete disservice to why PPF was created.

Equity Linked Savings Scheme (ELSS) and Pension Mutual Funds are both tax-saving instruments and are eligible for a tax deduction of up to Rs. 1.5 lakh under Section 80C of the Income Tax Act. Listed below are some of the differences between ELSS and Pension Mutual Funds.