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NSC Vs ELSS-Which Is The Better Tax Saving Investment?

If we talk about low risk and better returns, NSC is a better option to invest and save tax. Whereas, ELSS are those in which money can be invested through mutual funds in equity markets. One can invest in other options as well like fixed deposits, Public Provident Fund, National savings certificate, ELSS and many in the market, through which one can avail tax benefits depending on risk and returns.

Sarabjeet Kaur Sarabjeet Kaur
New Delhi Updated on: August 08, 2019 19:10 IST
NSC Vs ELSS-Which Is The Better Tax Saving Investment? 

NSC Vs ELSS-Which Is The Better Tax Saving Investment? 

Financial planning is a key factor in everyone’s life to secure a better future. Secured financial planning needs the right selection of products before investing. There are many investment products in the market which can save up to Rs 1.5 lakh from Income Tax under Section 80C. But, there are differences in terms of risk and returns depending on the schemes. Today, we are going to tell you which scheme is a better option- National Savings Certificate or Equity Linked Savings Scheme (ELSS) to save Income Tax.

No doubt, if we talk about low risk and better returns, NSC is a better option to invest and save tax. Whereas, ELSS are those in which money can be invested through mutual funds in equity markets. One can invest in other options as well like fixed deposits, Public Provident Fund, National savings certificate, ELSS and many in the market, through which one can avail tax benefits depending on risk and returns. Whereas, Suresh Sadogopan, Founder, Ladder7 says-“These are two different kinds of products, though contributions to both come under Section 80C. NSC is a simple debt investment product. ELSS is an equity product with a lock-in of 3 years. Hence, one needs to consider the risk, tenure and accordingly invest”.

Few things to know which the better option to invest is-NSC or ELSS…? Follow the low-down about both the investment options to save tax before investing…

National Savings Certificate (NSC): 

  • It’s a tax-saving investment which is issued by the government as bonds
  • One can buy from post office schemes 
  • Easily available from small to large city post offices
  • Lock-in period of NSC is 5 to 10 years
  • One can invest from a minimum of 100 rupees and there is no upper limit of investment
  • Interest rates are fixed from time to time by the Government, at present, they are at 8 percent
  • For new investors, rates may vary, but for the existing investors return will be at the same rate when they bought the NSC scheme
  • Interest rates on NSC have compounded annually, but in banks, interest is compounded quarterly
  • Protects the value of your capital against inflation
  • NSC is not inflation-protected schemes, so there is no effect of inflation on NSC investment directly
  • Can be used for a guarantee of a loan
  • The interests earned in NSC are taxable, but no tax deduction at Source (TDS)
  • If the tax earned is reinvested by the NSC holder, then the tax can be claimed under Section 80C of the Income Tax Act, 1961
  • To claim tax, one has to show the income from other sources under the head income and later tax can be claimed 
  • After 5 years of the lock-in period, one can withdraw the money
  • Risk is low and returns are fixed, backed by the Government
  • Individuals, joint holders, and minors( with the support of the guardian) can invest in NSC 
  • Can transfer the NSC to any of the post office branches in the country
  • One can encash the money from the branch where you bought NSC
  • Invest with a minimum of 100 rupees, so it is a very good scheme for small investors with less amount of income as well
  • The post office is easily available everywhere in villages and towns, one can invest without any pester

ELSS (Equity Linked Savings Schemes):

  • Type of mutual fund which is invested in equity markets or equity-related products a form of a systematic investment plan
  • The returns in ELSS are not fixed, as it depends on markets volatility
  • It may lead one to get a flat return also, depending on the performance of the market
  • The average return on ELSS is from 12-14%. It may vary from time to time
  • The interest rates are not fixed or mention. The return on money invested is all on market fluctuation and many economical factors
  • The lock-in period is of 3 years 
  • The risk factor in ELSS is more due to market condition and is unpredictable. But it has also proved to be a better investment option by giving a good return to investors
  • During the maturity of the ELSS, the amount received is not taxable
  • The minimum investment of ELSS in of rupees 500, and one can invest up to 1 lakh 50 thousand per year
  • Money can be paid monthly or through a lump sum or one at a time of investment for fixed years
  • One can withdraw the money anytime after 3 years of the lock-in period
  • You can continue even after 3 years of lock-in without taking the cash out from the scheme
  • The ELSS funds are much more flexible 
  • But, ELSS funds for a longer period of time can have a lower tax liability 

For capital protection, NSC is a good option and to enlarge your capital ELSS is a good option. Both are different in terms of risk and returns. ELSS is more flexible and is systematic investment plans, whereas NSCs has a very low minimum criterion of investment. People with limited means and low income can also invest in NSC. In the end, the last decision depends on the investors financial planning and needs of his or her future. It is advisable always to take proper guidance of a financial planner, understand the need of investment and the kind of benefit you want after a certain period of time to secure future before opting for ELSS or NSC to avail tax benefits.

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