A Comparative Study Of ELSS and Traditional

Investments Options:-

ELSS is an Equity Linked Savings Scheme. ELSS as the

name clearly suggests is a savings scheme linked to equity
markets. It is a type of mutual fund which additionally offers tax
benefits to the investors.

Equity linked saving schemes is a kind of mutual funds like

diversified equity funds with Tax benefits. It is just like other tax
saving instruments like NSC and Public Provident Fund. Main
advantage with ELSS is lock-in period is only 3 years while for
NSC it is 6 years and for PPF it is 15 years. At the same risk
factor is high in ELSS.

As per Income Tax act 80c investment up to Rs 1, 20, 000 is

eligible for deduction from the gross total income hence reducing
the total taxable income. For example if your total annual income
is Rs. 5,80,000 and you invest Rs 1,20,000 in ELSS then your
taxable income will become Rs. 4,60,000, so that you can reduce
the tax liability from 20% to 10%. Instead of paying 50,000 you
just have to pay 30,000 here you are saving Rs.20, 000.

Previously there was an upper limit for investing in tax

saving instruments like ELSS of 5, 00,000. Only individuals with
less than 5, 00,000 annual incomes are allowed to invest in tax
saving instruments. But last now any individual can invest in
ELSS irrespective of their income level.
Features of ELSS
• It is a fund with a lock-in period of 3 years.
• It offers tax benefit to the investors under section 80c of the
income tax Act up to a maximum limit of 1.2 Lac per annum.
• Investment has to be for long term only any expectation of
short term gains is not appropriate.
• Involves a little bit of risk because of equity allocation.
• It helps an investor savings by offering systematic
investment option.
• Beneficial to salaried people.

Comparison of ELSS with Traditional Investment Options

a) Fixed Deposits VS ELSS

Tax-saving fixed deposits are conventional fixed deposits
offered by banks.

Point Of FD ELSS
Comparison
Minimum Sum Rs 100/- Rs 500/-
Invested
Offered Mainly by Banks Mutual
fund companies
Returns 7%-9% p.a 15%- 30%
Receipts of Returns On Maturity Depends on
performance
Lock in period 5yrs 3yrs
ELSS VS Public Provident Fund:-

Public Provident Fund (PPF) is a statutory scheme of the

Central Government of India. Deposits in PPF qualify for rebate
under section 80-C of Income Tax Act. The interest on deposits is
tax free.

Point Of Comparison PPF ELSS

Returns 8% Variable (15%-
30%)
Interest receipt On maturity Depends on
performance
Tax Benefit u/s 80c (per yr) Rs 70000 Rs 120000
Risk level Low High

Lock in period 15yrs 3yrs

ELSS VS NSC:-

National Savings Certificates (NSC) is a certificate issued by

Department of post, Government of India and is available at all
post office counters in the country. It is a long term safe savings
option for the investor. The scheme combines growth in money
with reductions in tax liability as per the provisions of the Income
Tax Act, 1961.
Point Of Comparison NSC ELSS
Rate of Return 8% Variable (15%-
30%)
Lock in period 6yrs 3yrs
Min. investment Rs 100 Rs 500
Tax Benefit u/s 80c (per yr) Rs 120000 Rs 120000
Risk level Low High

ELSS VS ULIP:-

ULIP or Unit Linked Insurance Plan is primarily an insurance

product as is evident from its name itself. It offers you the option
to invest your money in debt, equity or mixture of debt and equity
funds.

Point Of Comparison ULIP ELSS

Lock in period 3yrs 3yrs
Tax benefits Rs 120000 RS 120000
Charges High(30-35% ) Low (2-2.5%)