Equity Linked Savings Scheme, or ELSS funds, is a better product to create higher wealth on your investments as it provides pure equity exposure.
I am 44 years old. I am into professional services. I want to know which is a better tax-saving investment option under Section 80C of the Income Tax Act-NPS or ELSS mutual funds. As far as returns are concerned, I can see amazing double-digit returns by NPS which has been delivering similar returns for some time now. Since it is government-backed, does it make a better investment than ELSS funds? I want to plan my taxes for the next year, which will be the financial year 2021-22. Please help with the best advice.
– D. Anurag
By Divam Sharma, Co-Founder, Green Portfolio, SEBI Regd. Portfolio Management Services
National Pension System or NPS is a good investment option for investors. You can invest a maximum of up to Rs 50,000 per annum in it to get an additional deduction u/s 80 CCD (1B). You can consider HDFC Pension Management or SBI Pension Funds as your fund manager for the NPS.
Equity Linked Savings Scheme, or ELSS funds, is a better product to create higher wealth on your investments as it provides pure equity exposure. Equity investments give higher returns over a horizon of three years than hybrid (debt and equities in NPS).
A lower interest rate regime can dampen the returns on NPS going forward.
However, you have to continuously evaluate the funds’ fact sheets and rebalance your ELSS investments on a periodic basis.
ELSS gives you the additional benefit of having a lower lock-in of three years, which provides you with an additional upside of switching to a better investment product from the tax-saving product later.
You can consider investing in the following ELSS schemes:
BNP Paribas Long Term Equity Fund (G)
BOI Axa Tax Advantage Fund (G)
Canara Robeco Equity Tax Saver Fund (G)