What the lock in costs you

March, about nine at night. A friend forwards me a screenshot of his office group chat and types one word underneath it. "Settle."

Sixty-odd messages. ELSS against PPF against NPS. Somebody has pasted a five year return chart. Somebody else has answered with the PPF rate and a line about how equity is lovely right up until the year it is not. A third man, the one who always wins these threads, has pointed out that NPS carries an extra deduction and declared the matter closed.

I built the sheet while the tea went cold. Rs 1,50,000 a year, the full Section 80C slot, going in at the start of every year for twenty years. Three assumed rates held constant, purely as an illustration. Twelve percent, eleven percent, and 7.1 percent, which is what PPF actually pays this quarter.

Four minutes. And it settled nothing, because the thing they were arguing about is not the thing that decides the money.

The return argument in that group is worth about Rs 54 lakh. The exit clause none of them had opened is worth about Rs 40 lakh. Sixty messages went to the first one.

The part everybody argues about, in one chart

Same contributions, same twenty years, same person keeping the same discipline. Rs 30 lakh of your own money goes in either way. Only the assumed rate changes, and I have mapped the three rates onto the three products the way the argument usually assumes they map. These are assumptions I picked to match how the fight is normally framed. They are not forecasts.

Illustrative

Rs 54.47 lakh separates the top bar from the bottom one, on Rs 30 lakh of contributions. Nearly twice the money you put in, which is why charts like this get forwarded. Here is what the picture cannot tell you on its own. Rs 40.31 lakh of that Rs 54.47 lakh sits between the eleven percent bar and the 7.1 percent bar. Only Rs 14.15 lakh of it separates twelve from eleven. So the fight that consumed the thread, ELSS against NPS, is the smallest leg of the whole thing. The leg that matters is whether you hold real equity at all.

The comparison in that thread was not the comparison they thought

There is a second problem with the chart, and it is the one PPF defenders reach for. A 7.1 percent PPF return arrives with no tax on it. A 12 percent equity return does not. Putting those two numbers next to each other and declaring a 4.9 point gap is comparing two different currencies.

Do the conversion properly. For a saver at the top slab grossed up for cess, 31.2 percent, a tax free 7.1 percent is worth the same as a fully taxable 10.32 percent.

The conversion is one division, and it depends on your own slab. PPF's 7.1 percent is still the rate for Oct to Dec 2026, after the government left small savings rates unchanged on 30 Sep 2026.

What a tax free rate is worth before tax

Tax free rate (%) Your marginal slab with cess (%) Taxable rate you are comparing (%)

Pre tax equivalent

10.32%

Real gap against the taxable rate

1.68 points

Slab with 4 percent cess: 30 percent becomes 31.2, 20 becomes 20.8. PPF rate for Oct to Dec 2026, Ministry of Finance notification of 30 Sep 2026.

At a 20.8 percent slab the same PPF rate is worth about 8.96 percent taxable, and the gap against 12 widens to roughly three points. The lower your slab, the less the tax free label is worth.

Illustrative

The honest gap is 1.68 points, not 4.9. And the reason I am showing this is not to rescue PPF. It is to show that even after you hand PPF its strongest available argument, the corpus gap is still Rs 54.47 lakh, because 1.68 points compounded across twenty years is enormous. One wrinkle I should name rather than hide. Equity gains are taxed as capital gains, not at slab, so the true conversion for ELSS sits somewhere between 7.1 and 10.32, and I cannot pin it without knowing your redemption pattern. Tax treatment moves the answer more than fund selection does, which is itself the point.

Then I opened the exit clauses, and that is where the evening went

Nobody in the thread had quoted a single line from any of the three scheme documents. So I read them. The rates are the column everyone stares at. The middle two columns are the ones that decide what you can actually do with the money.

Look at the ELSS row and the NPS row next to each other. The corpus difference between them is Rs 14.15 lakh over twenty years. The exit difference between them is the whole of your sixties. One lets you take everything on a Tuesday afternoon three years after each instalment. The other decides, on your behalf, what a large slice of your money will be doing for the rest of your life.

Forty lakh rupees, decided by a clause nobody in that group had read

I went to check the NPS split before publishing it, and it had moved under me. The rule I had carried in my head, sixty percent as a lump sum and forty percent compulsorily into an annuity, is now only the government sector rule. PFRDA amended the exit regulations, notified at the end of 2025, and for all citizen and corporate subscribers the compulsory annuity dropped to twenty percent above a corpus threshold. The tax exemption did not move with it. Only sixty percent of the corpus is tax free either way, so the extra twenty percent you are now allowed to take comes out at your slab.

Illustrative

Read the navy boxes, not the outlined ones. On the government track, Rs 40 lakh of a Rs 1 crore corpus stops being capital and becomes an income stream of Rs 20,000 a month, and the Rs 40 lakh behind it is no longer yours to redirect, to lend to a child, to put into a business or to leave anywhere you choose. That is the number worth sitting with. The entire return argument, across three genuinely different products, over twenty years, on Rs 30 lakh of contributions, is worth Rs 54.47 lakh. The exit clause on one of them moves Rs 40 lakh. Seventy three percent of the size of the whole debate, decided by a paragraph nobody in that group chat had read, on a day none of them had thought about yet.

The other track is not free either. Taking the extra twenty percent as cash means Rs 20 lakh landing in a single year at slab, roughly Rs 6.24 lakh of tax at 31.2 percent, on an illustrative basis.

Here is the non government track on the same illustrative Rs 1 crore, split by what the rules let you do with each part.

• Lump sum, tax free60%
• Lump sum, taxed at slab20%
• Compulsory annuity20%

Non government subscriber above the corpus threshold, PFRDA exit regulations as amended end 2025. Illustrative corpus.

What happens when a few crore people all have to buy the same thing

Second order effects are where this gets interesting. A compulsory annuity does not just constrain you. It creates a pool of buyers who must transact regardless of what is on offer. Demand with no choice does not negotiate. It cannot walk away, cannot wait for a better quarter, cannot go elsewhere. A market with captive demand on one side has never priced in favour of the captive side.

Which reframes the 2025 amendment. Cutting the compulsory annuity from forty percent to twenty for non government subscribers did not just give individuals flexibility. It halved the captive pool. If that pool was ever holding annuity rates down, a smaller one should push them up, and the people who benefit most are the government subscribers still buying at forty percent.

Then the third order. That released money has to go somewhere. Twenty percent of a lifetime's retirement corpus arriving as cash, in a year when markets are doing whatever they are doing. The forced annuity was a bad deal that was also a guardrail. Removing it is a real improvement and it will also produce a set of retirement disasters that the old rule would have prevented.

The lock-in is not only a cost, and pretending otherwise would be dishonest

Everything above prices illiquidity as a tax. For a large number of people that is exactly backwards.

If your genuine risk is your own hand on the redeem button in month four of a drawdown, then the lock-in is not the price of the product. It is the product. PPF's fifteen years has quietly protected more household wealth in this country than fund selection has ever created, because it removed the decision entirely from people who would have made it badly. A commitment device that costs you 1.68 points a year and stops you destroying half your corpus in one panicked afternoon is not expensive. It is cheap.

The problem is that the same fifteen years, in the year your business needs working capital or a parent needs surgery, is the reason you take a loan at fourteen percent while sitting on your own money. A lock-in helps every year until the year it hurts, and you do not get to choose which year that is.

What I do not know, and what would change my mind

The three rates are assumptions I chose, not forecasts. Change twelve to nine and the ELSS bar drops below the NPS one, and every conclusion about which corpus is larger reverses. The corpus figures are arithmetic, the rates behind them are opinion.

The 6 percent annuity assumption is illustrative. Annuity rates move, and they differ sharply by whether the purchase price is returned to your family. I have not quoted a live rate because it would be stale by the time you read this.

The NPS rule changed while I was writing this, which is a fair warning about the whole exercise. Every one of these products is defined by circular, and a spreadsheet built on this year's clause has an expiry date on it.

Here is the falsification. If you have held an equity SIP through two full drawdowns without stopping it, the commitment device is buying you nothing, and you should price every lock-in purely as a cost with no offsetting benefit. Everything I said about PPF's fifteen years being protective simply does not apply to you.

Three rules I would give the group chat

Read the exit clause before the return chart. The return chart is a projection of an assumption. The exit clause is a rule someone will apply to you whether you agree with it or not, on a day you cannot postpone. One of those two is a fact.

Price the lock-in against your own behaviour, not against a benchmark. The right question is not which product returns most. It is which product you will still be holding in year nine when something goes wrong in your life, and the honest answer differs from person to person. That is a question about you, and a risk profile answers it better than a fund fact sheet does.

Never compare a tax free rate with a taxable one. Gross up first, then argue. A systematic framework built on the wrong comparison is still built on the wrong comparison. If you want the arithmetic laid out properly rather than argued at nine at night, start here.

So the argument in that thread had a step missing before the return chart: which regime each person files under. In the new regime the Rs 1,50,000 slot buys no deduction at all, and the products are judged purely on return, liquidity and the exit clause.

They are still arguing in that group, as far as I know. Somebody will win it on returns in the next few days and everyone will feel the matter is settled.

The forty lakh sitting inside that exit clause will not care who won.

The free Learn module on tax treatment of funds, bonds and other products sets the rules side by side, and the note on the order of NPS, PPF and ELSS works through the regime question in detail.

Questions readers ask

What is the pre tax equivalent of the PPF interest rate?

Divide the PPF rate by one minus your marginal tax rate including cess. At 7.1 percent, the rate for Oct to Dec 2026, that is about 10.32 percent for someone at the 31.2 percent slab and about 8.96 percent at 20.8 percent.

How much of the NPS corpus can be withdrawn at 60?

After the amendment notified at the end of 2025, non government subscribers can take up to 80 percent as a lump sum and must annuitise at least 20 percent above the corpus threshold; government sector subscribers keep the 60 and 40 split. Only 60 percent of the corpus is tax free, so the extra 20 percent is taxed at slab.