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Business News/ Money / Personal Finance/  Income tax saving options: NSC vs ELSS mutual funds. Which is better for taxpayers?
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Income tax saving options: NSC vs ELSS mutual funds. Which is better for taxpayers?

ELSS vs NSC: The suitability of an investment product depends on factors like risk tolerance, time horizon, and future fund needs

NSC vs ELSS mutual funds: The choice between ELSS and NSC hinges on individual financial goals and risk appetite.Premium
NSC vs ELSS mutual funds: The choice between ELSS and NSC hinges on individual financial goals and risk appetite.

NSC vs ELSS: Numerous products qualify for tax benefits under Section 80C, including insurance, tax-saving fixed deposits, NSC, and ELSS. The suitability of an investment product depends on factors like risk tolerance, time horizon, and future fund needs.

ELSS Mutual Funds

Equity Linked Saving Scheme (ELSS) mutual funds offer tax deductions up to 1,50,000 annually under Section 80C of the Income Tax Act, 1961. Investing in ELSS provides the advantage of both tax benefits and wealth accumulation. ELSS funds have a short lock-in period of three years, the shortest among all tax-saving investments, and have the potential to yield high returns compared to other options under Section 80C.

National Savings Certificate (NSC)

NSC is a popular investment option offered by the Government of India to encourage small savings among individuals. It is available through post offices across the country and offers attractive benefits to investors.

Under Section 80C of the Income Tax Act, individuals can claim a tax deduction of up to 1.5 lakh per financial year on the principal amount invested in NSC. However, it's important to note that while the principal amount invested in NSC is tax-free up to the specified limit, the interest earned on NSC is taxable. Despite the taxation on interest earned, NSC remains a popular investment choice for many individuals due to its safety, and guaranteed returns

The choice between ELSS and NSC hinges on individual financial goals and risk appetite. “ELSS suits those seeking higher returns with higher risk tolerance, while NSC offers stability and guaranteed returns for risk-averse investors," said Abhishek Soni, CEO and Co-founder of Tax2win.

Understanding the investment horizon is crucial; ELSS, with a 3-year lock-in, suits short-term goals, while NSC, with a 5-year lock-in, caters to long-term objectives.  added the Tax2win CEO.

“ELSS are risky for a short duration. They have the potential to give you better returns as compared to NSC in the long run. Though the ELSS schemes have a lock-in period of only three years If you are investing in ELSS funds or for that matter in any equity scheme or mutual fund, you should have a minimum time horizon of eight to 10 years," said Mumbai-based investment and tax expert Balwant Jain.

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 a Systematic Investment Plan (SIP) so that your investment is spread over the year, added Jain.

Despite the new tax regime, i.e. tax on Long-Term Capital Gains from ELSS, these funds, in the opinion of experts, still, hold their place as one of the best tax-saving options. “ELSS can play a significant role in your portfolio. These equity-linked instruments have the potential to offer higher returns and are an ideal choice of investment for the long term. ELSS holds its ground, even with its returns being taxed, with higher post-tax returns than any other Section 80C investment options such as Public Provident Funds (PPFs) and ULIPS. ELSS has a lower lock-in period. Unlike the PPF, NSC, and EPF, all of which require a minimum of five five-year lock-in period, ELSS is a far better option with just three years of lock-in," said Archit Gupta, Founder and CEO, of Clear.

Disclaimer: The views and recommendations made above are those of individual analysts, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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ABOUT THE AUTHOR
Sangeeta Ojha
A business media enthusiast. Writes on personal finance, business and banking.
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Published: 01 Mar 2024, 01:05 PM IST
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