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Ask Money Today: NPS vs ELSS Funds: Which is a better tax-saving option?

Ask Money Today: NPS vs ELSS Funds: Which is a better tax-saving option?

Equity Linked Savings Scheme, or ELSS funds, is a better product to create higher wealth on your investments as it provides pure equity exposure

NPS vs ELSS Funds NPS vs ELSS Funds

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)

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(Views expressed by the investment expert are his/her own. E-mail us your investment queries at askmoneytoday@intoday.com. We will get your queries answered by our panel of experts.)