Investment options that offer tax benefits and an opportunity to generate wealth are always a favourite combination of the investing community. The Government of India, Section 80C of the Income Tax Act, 1961, offers a list of investments that provide tax deductions for investors. These tax-saving investments include ULIP (Unit-linked Investment Plan), PPF (Public Provident Fund), EPF (Employees’ Provident Fund), Life insurance, ELSS (Equity-linked Savings Scheme), etc. ELSS fundsare one of the most common and widely popular 80C investments.These tax-saving funds are a class apart. This is because ELSS funds have the potential to offer the highest returns than any other tax-saving investments. What’s more, ELSS mutual funds have a lock-in period of just 3 years, lowest among other 80C investments. Let’s understand how ELSS funds hold an edge over other 80C investments:
ELSS vs Other 80C investments
| Basis of comparison | ELSS | ULIP | PPF | EPF | LIFE INSURANCE |
| Definition | These are tax saving mutual funds with a majority of their corpus invested in equity or equity-related securities.
|
It is an investment plus insurance product where a part of the investment is used for investments in preferred financial products, while the other part is used for securing the investor’s life. | It is a savings scheme provided by the government of India wherein the government pays a fixed, predetermined interest. PPF schemes are considered as one of the safest tax-saving investment options. | It acts as a saving tool for employees. Under this scheme, the employee and the employer contribute an equal amount towards savings which can be redeemed upon the retirement of the employee. | It is a contract between an insurer and a policyholder in which the insurer promisesa death benefit to beneficiaries upon the death of the insured. |
| Expected returns | 15-18% | – | 8%-8.5% | 8-9% | 6-8% |
| Tax benefits | Tax deduction of up to Rs1.5-lakh per annum u/s 80C. Gains are taxed at 10% above Rs1 Lakh without the indexation benefit. | The invested amount offers tax deduction of up to Rs1.5 Lakhs under section 80C. However, the gains are taxable. | Money deposited in a PPF account u/s 80C can receive tax benefits of up to Rs1.5 lakh. Interest gained is tax-free. | The invested amount offers tax benefits of up to Rs1.5 Lakhs under Section 80C of the Income Tax Act, 1961 | The invested amount offers tax deduction u/s 80C and 10(10D) |
| Liquidity | High-liquidity at all times after the lock-in period. | Funds can be available after the lock-in tenure subject to further policy conditions. | Low or partial withdrawals after the expiry of 7 years from the account opening year. | An investor can withdraw 75% of their EPF corpus if they have been unemployed for more than 1 month. | It has a low liquidity ratio |
| Lock-in period | 3 years | 5 years | 15 years | Only an investor with an income of Rs15000 pm or less is mandated to contribute in EPF | 5 years |
Tax on mutual fundsis one of the most important criteria. Often, investors skip it to earn higher returns. But, in an attempt to do so, you might lose a significant part of your earnings as taxes can eat a massive chunk of your earnings. So, do consider the tax out-go on your mutual fund investments. Happy investing!