ELSS Verses NSC And PPF

Now Indian tax payers have multiple tax saving options available in the market but the most critical part is making the right choice. The very first question come into mind is, which scheme will help save tax while maximizing returns. Although, traditional tax saving instruments like Public Provident Fund (PPF) and National Saving Certificate (NSC) been hot favorite since long, but now Indian economic growth has opened up a large number of other avenues.

Under section 80C of the income tax act, an individual can invest up to Rs 1 lakh into a tax saving schemes to save tax. The amount invested in these schemes is deducted from your taxable income, bring down your tax liability. If you earn Rs 5 lakhs per annum and make investments of Rs 1 lakh in 80c instruments then the taxable amount will be Rs 4 lakhs. Lets have a look on ELSS over traditional Investment options like NSC and PPF.

ELSS

Equity Linked Saving Scheme (ELSS), as the name suggest it is a saving scheme which invest in the equity market. ELSS is a special category of mutual funds that invest mostly in stocks. They are very comparable to diversified equity funds ( Investment fund that contains a wide variety of securities to minimize the amount of risk in the fund.). The only difference between regular diversified equity funds and ELSS mutual funds (MF) is that there is a lock-in period of 3 years. It means that once you invest in ELSS MF, you can not withdraw your investment for a period of 3 years.

Difference Between ELSS And NSC

National Savings Certificates (NSC), is a post office savings plan supported by the government and is one of the secure investment alternatives.

Point Of Difference	ELSS	NSC
Tenure (Lock-In Period)	3 Years	6 Years
Minimum Investment	Rs 500	Rs 100
Maximum Investment	Rs 100,000	Rs 100,000
Risk Level	High	Low
Nature Of Return	According To Market	Fixed
Interest Frequency	No Assured Dividend / returns	Compounded half yearly
Tax Liability	Tax-Free	Taxable
Rate Of Return	Variable	Fixed

Difference Between ELSS And PPF

Public Provident Fund (PPF), is supported by the government and is generally safe with comparatively high returns.

Point Of Difference	ELSS	PPF
Tenure (Lock-In Period)	3 Years	15 Years
Minimum Investment	Rs 500	Rs 500
Maximum Investment	Rs 100,000	Rs 100,000
Risk Level	High	Low
Nature Of Return	According To Market	Fixed
Interest Frequency	No Assured Dividend / returns	Compounded annually
Tax Liability	Tax-Free	Tax-Free
Rate Of Return	Variable	Fixed

Advantages Of ELSS Over NSC And PPF

ELSS have a lock in period of 3 years whereas maturity period of NSC is 6 years and PPF is 15 years.
Potential to give higher returns as compared to NSC and PPF
Investor can opt for dividend option and get some gains during the lock-in period
Investor can opt for Systematic Investment Plan (SIP) to make investment in small monthly installments
Some ELSS schemes also offer personal accident death cover insurance
Provides 30 to 40% returns compared to 8.4% in NSC and 8.6% in PPF