Home / Money / Personal Finance /  ELSS or NSC : Which is a better tax saving option?

I am a working professional of 28 years. I want to invest 1 lakh every year for tax saving purposes under Section 80C. I am confused as to whether I should invest in ELSS or in National Saving Certificates (NSC). I do not need this money for next 10 years. My purpose is to save tax and maximize the returns.

-Anita Rai

By Balwant Jain, tax and investment expert

There are various products eligible for availing tax benefit under Section 80C. These range from insurance products to tax saving fixed deposit of banks to ELSS etc. Suitability of a particular investment product will depend on various factors like your risk appetite, time horizon available and fund requirement in near future.

Since the NSCs offer you fixed rate of interest for next 5 years, there is no scope for you to maximize your returns. Since your time horizon is around 10 years, in my opinion, Equity Linked Saving Scheme of mutual funds, popularly known as ELSS, are suitable products for you. ELSS Funds are basically equity funds and are thus risky for short duration. They have the potentials to give you better returns as compared to NSC in the long run. Though the ELSS schemes have lock-in period of only three years but there is no guarantee of positive returns within the lock-in.

You can redeem your investment anytime after within three years but you may have to continue with the investments in ELSS beyond three years in case the market is not is good shape then. If you are investing in ELSS funds or for that matter in any equity scheme of mutual fund, you should have minimum time horizon of eight to 10 years.

Since, you are young, you can afford to take high risk and thus take equity exposure by investing in ELSS funds. But, if your time horizon is shorter than seven years, you should consider investing in NSC or Tax Savings Bank FD for tax savings u/s 80 C. For making investments in ELSS I would suggest you the route of Systematic Investment Plan (SIP) so that your investment is spread over the year.

(Views expressed by the expert are his own.)

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