ELSS vs Other Tax Saving Schemes – Which One Secures Your Future Best?
Last Updated : Dec. 31, 2018, 5:22 p.m.
Financial planning for the future can be one heck of a task considering the numerous ups and downs that are parts and parcel of one’s life. Keeping in mind the unforeseen challenges ahead, you should look to keep money in financial instruments that could generate substantial returns to enable a smooth ride. But, good returns alone can’t pave it for you. Yes, you read it right! The investments you make have to be tax-friendly at the same time so as to generate maximum corpus.
There are products such as Equity-linked Savings Scheme (ELSS), Public Provident Fund (PPF), Tax-saver Bank Fixed Deposit , National Savings Certificate (NSC) you could invest in to meet the purpose of returns and tax benefits. All these products offer income tax benefits under Section 80C of the Income Tax Act.
You should, therefore, compare these investments and choose one with maximum benefits on offer. Let’s head straight to the table below showing the comparison of the products offering income tax benefits under Section 80C.
Table Comparing Tax-saving Products Available Under Section 80C on Different Investment Aspects
| Investment Aspects | ELSS | Tax-saver Fixed Deposit | NSC | PPF |
|---|---|---|---|---|
| Lock-in period | 3 Years | 5 Years | 5-10 Years | 15 Years |
| Tax Deduction Limit | Up to ₹1.5 lakh in a financial year | Up to ₹1.5 lakh in a financial year | Up to ₹1.5 lakh in a financial year | Up to ₹1.5 lakh in a financial year |
| Interest Rate/Returns Applicable | 12%-15% (Average) | 5.50%-7.55% per annum | 8% per annum | 8% per annum |
| Minimum Investment Amount Permitted | ₹500 | ₹1,000 | ₹100 | ₹500 |
| Maximum Investment Amount Permitted | No Limit | Up to ₹1.5 lakh a year (However, only one lump sum deposit is allowed) | Up to ₹1.5 lakh a year | Up to ₹1.5 lakh a year |
| Premature Withdrawal Facility | Not available | Not available | Available during events such as the death of the investor or by the court order | Partial withdrawal allowed from the 7th financial year onward |
The table above clearly indicates ELSS to be a better option over other tax-saving schemes in terms of lock-in period and return prospects even though the latter point is increasingly dictated by the stock market sentiments during the period of investment. Also, there’s no investment cap on ELSS as opposed to its competing products where you can’t invest beyond a specific amount in a year. No investment cap raises the possibility of raking in massive surplus because of the high-return proposition of equities. ELSS investments can lead to an average return of around 12%-15% over a long period. With such return prospects, you can easily ward off the challenges posed by inflation in the future.
So, if you can invest in the volatility of equities, ELSS with a higher return proposition should be a better pick than its counterparts. Else, you can choose from the fixed income instruments of bank FDs, NSC or PPF on factors such as investment flexibility, returns, etc. However, you may have to put more money into these instruments to generate a surplus that can help deal with the high inflation scenario in the future.