Assured Returns options of ELSS & NSC

By | March 20, 2012

People do invest their savings for the sake of getting tax rebates. One of the most popular format of savings and investment in India is NSC (National Savings Certificate). It gives the tax rebate to the investor under s/c 80C on Indian Indian Income Tax act. The same tax benefit is given by another new investment option better known as ELSS (Equity Linked Savings Scheme). In terms of security of capital and assurance of returns NSC will be a better investment option. But in terms of returns ELSS is a notch over NSC. The return obtained form NSC is 8% p.a. (taxable) and in ELSS expecting 10% (not taxable) is not bad.

If an investor is investing for the sake of growth of capital which can also save him some tax then ELSS is the option. People often stick to the more traditional and known NSC, but ELSS is by far the better investment option then NSC. Let us glance at few quick benefits of investing in ELSS which is at par or sometimes better than NSC specification:

  • Returns obtained from ELSS (10%) is better than NSC (8%)
  • Lock-in period for ELSS is 3 years and for NSC it is 6 years.
  • After 3 years if one sells the ELSS units, no deductions will be made on returns. Long term capital gain tax for ELSS is zero. But for NSC, the returns are taxable.

The returns of ELSS is not a fixed return like NSC. The performance of ELSS is dependent on share market. Even two ELSS of different companies will not have same returns. This is because the returns in ELSS is also dependent on the composition of shares help by the fund manager. If we take the performance of ELSS for last three years (form dec 2009), returns is almost 8.2% which is very impressive. Considering ELSS does not attract income tax if held for 3 years is by far the better investment option than NSC. But yes the returns are almost certain in NSC but in ELSS returns are not confirmed. So there is a risk attached to ELSS investment. But considering the expected benefits of ELSS, taking this risk is worth.

ELSS is a tax free returns savings and investment plan. Similarly PPF (Public Provident Fund) is also a tax free investment plan. The returns in PPF is not taxable. But the disadvantage of PPF is that it has a lock-in period of 15 years.

List of few good ELSS schemes and their actual returns in 3 years is listed below for your ready reference

Scheme 3-year                                     Return (%)
Canara Robeco Equity Tax Saver        16.9
Fidelity Tax Advantage                            12.4
Franklin India Taxshield                          9.9
HDFC Taxsaver                                            10.09
Magnum Taxgain                                        6.2
Taurus Tax Shield                                      18.5
Religare Tax Plan                                        14.1
ICICI Pru Tax Plan                                     12.8

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