Know the difference between NPS and ELSS

Equity Linked Savings Scheme (ELSS) is a tax saving mutual fund scheme. NPS scheme is a scheme by the government where individuals can invest when they are earning so that they get a pension when they retire. Let us now look into an NPS Vs ELSS comparison.

  1. Taxability: When looking at the NPS Vs ELSS question, taxability is essential. ELSS offers a maximum deduction of Rs 1.5 lakh under section 80C of the Income Tax Act. Further long term capital gains in ELSS over Rs 1 lakh is taxed at 10 percent. With investments in NPS, there is a tax deduction of Rs 1.5 lakh under section 80C. There is an additional deduction of Rs 50,000 under Section 80CCD (1B).

    For NPS, the entire 60 percent corpus withdrawn at the time of retirement is tax-free. However, the pension from the remaining 40 percent that is invested in annuities is fully taxable.

  2. Returns: Another thing to consider in ELSS vs NPS study is the returns. ELSS funds have a more aggressive exposure to equity, up to 90-95 percent, while in NPS, the maximum allocation to equity is 75 percent, reducing as one grows older. So ELSS has the potential to give higher returns over a more extended period.

  3. Flexibility: While ELSS invests only in equity, NPS invests in equities, government securities, corporate bonds and other investments. Investors have the choice of selecting their asset mix if they have confidence in making the right choice. They can also go for three types of lifecycle funds depending on their risk appetite.

    In ELSS, investor can choose several ELSS funds. NPS investors have to go with the pension fund he or she wants.

  4. Liquidity: ELSS has a lock-in period of 3 years. NPS has a much longer time horizon.

An investor can withdraw only at the time of retirement or when he or she turns 60. However, NPS allows you to switch to another pension fund. NPS investors can also change asset allocation.

It is not possible to answer the question- NPS or ELSS, which is better. In the same way, an NPS Vs PPF Vs ELSS comparison is not fair as they are all different products. As we have seen, these products are different. An investor should invest in them according to his needs.

Want to invest in NPS? To open an NPS account online with HFDC Bank, click here!

Want to know the difference between NPS vs EPF? Click here to know more.

* Terms and Conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action.