Tax saving: National Saving Certificates (NSC) or ELSS, which is a better option?

For individuals looking to keep their money invested for as long as 10 years, ELSS could prove to be a suitable product. ELSS Funds are basically equity funds and so they are risky for a short duration. However, they can be promising in the longer terms as compared to NSC.

ET Now Digital

Updated Feb 22, 2022, 06:19 IST

Tax saving: National Saving Certificates (NSC) or ELSS?

New Delhi: Numerous investments tools are covered under Section 80C to serve the individual with tax saving. From insurance products to tax-saving fixed deposit of banks to ELSS etc., individuals can pick as per their needs or deposits or other factors like risk appetite, time horizon.

However, a vast majority finds itself confused between the National Saving Certificates (NSC) and Equity Linked Saving Scheme (ELSS). Currently, the fixed annual interest offered by the NSC is 6.80 per cent and for the next 5 years, there is no scope for an individual to maximize their returns against the return offered by ELSS, as a category.

For individuals looking to keep their money invested for as long as 10 years, ELSS could be a suitable product. ELSS Funds are basically equity funds and so they are risky for a short duration. However, they can be promising in the longer terms as compared to NSC.

The lock-in period for NSC is 5 and 10 years while for ELSS it is 3 years. But since, ELSS are equity funds, there is no guarantee that it would yield great returns in 3 years. So, keeping invested in ELSS could be a better choice in the long run. Some ELSS plans have even offered returns at the rate of 25 to 30 per cent, much higher than the returns given by NSCs.

Individuals having a time horizon shorter than 7 years should consider investing in NSC or Tax Savings Bank FD for tax savings u/s 80 C.

Frequency of interest accumulation

In NSC, the interest is compounded half yearly. Meanwhile, it is not applicable to ELSS as they depend on the market conditions.

Tax liability

The interest earned in NSC is taxable while the amount received at end of maturity through ELSS is not taxable.

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