Why ELSS Is Still Better Tax Saving Investment Option In India

With the financial year nearing its end, many of us will start looking at investment opportunities under section 80C to save on our taxes, we've listed 5 non traditional investment options for you but I feel ELSS should be your choice as Tax Saving Investment compared to other instruments like Public Provident Fund (PPF), 5 years Bank Fixed Deposits, National Saving Certificate under the Section 80C. 

With mutual funds you are enjoying the benefits of the stock market along with the low risk of your capital. Last month we've posted on How you can earn more with SIP in mutual fund post LTCG . As ELSS is special category of mutual fund you'll enjoy the same benefits in the ELSS also save on tax.

I've listed some of the benefits on why should you choose ELSS over other tax saving instruments.

Why ELSS is still better tax saving investment option in India

Lets see the various tax saving instuments and their respective lock in period.

Tax Saving InstrumentReturnLock In Period (In Years)Risk Level
ELSSMarket Linked3Moderate to High
UlipMarket Linked5Moderate to High
NPSMarket LinkedTill 60 Years of AgeModerate to High
EPF8.55%Untill RetirementLow
Tax Saving FD6.50%5Low
Senior Citizen Savings Scheme8.30%5Low
Sukanya Samruddhi Scheme8.10%18Low


1. Higher returns on your hard earned cash

Since ELSS funds entirely invest in stocks, they are best placed to earn better inflation beating returns. Other debt instruments can give about 8% of returns, investing in equity may produce higher returns in favorable situations in the stock market. In the rising economy like India, a good ELSS fund with quality stocks may reap higher returns.

2. Lock in period: 

Biggest advantage of ELSS is the lock in period. You have to stay invested at-least for 3 years this gives fund managers guarantee of available funds; after completion of 3 years, you can redeem part or whole of your ELSS at any time. When you're invested for long time stock market always outperform on all other investment options or loan taken. 
Disadvantages of ELSS funds

3.Low Minimum Investment

If you wish to enter into the stock market, you can do so with ELSS as the minimum amount for starting SIP in ELSS fund is only Rs.500/- which is affordable to all.

4. Taxation

 Corpus that you've invested can be claimed under section 80C also you enjoy tax free dividendsfrom these ELSS

1. No Capital Gain Benefits

As per the Budget 2018-19 ELSS will not be taxed with Long Term Capital Gain at 10%. With this the return on the investment becomes taxable but any kind of dividend received are still non-taxable. This becomes disadvantage of the ELSS, but you'll not mind to pay tax if you received returns higher than that of other traditional options. 

2. Your Capital is on Moderate to High Risk 

One can not claim any type of guaranteed returns because ELSS earn from investments in the stock market. However, on the long run equity market have outperformed all other asset classes. The key to successful mutual fund investing is one has to choose good ELSS and stay invested for the long term. In previous post we've explained how you can get home loan with almost 0% interest with investment in SIP / Mutual Fund. 


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