NPS vs PPF vs FD vs ELSS: What should you choose?

Even though it is said that financial goals are the groundwork for saving and investing activities, most people start investing just to save tax. However, there are also people who want to follow a healthy financial lifestyle but don’t know where to start from.

If you are one of them, you can start with identifying your financial goals. Try to make your goals specific, realistic and action-oriented. From mutual funds (equity and debt) to FDs, PPF, NSC, gold, and real estate, there are multiple options to choose from for investment today. With so many options in the market, most get confused and can’t decide which one to pick.

Here is a list of investment options that you can choose from:

Equity Linked Saving Scheme (ELSS)

Equity-linked savings scheme is an open-ended Equity Mutual Fund and also one of the most productive tax-saving options wherein you can start investing from as low as Rs 500. ELSS comes with a mandatory lock-in period of 3 years from the date of investment. With the ELSS scheme, investors can invest around 65 per cent of their funds in the equity market. The rate of interest received on investment in ELSS is directly linked to the market performance. Additionally, investments in this scheme also qualify for tax deduction under section 80C and fall under the EEE category. According to experts, investors planning to invest for longer periods ranging from 5 to 7 years should opt for this equity scheme.

National Pension Scheme (NPS)

National Pension Scheme is a government-sponsored scheme, because of which it is considered as a safe option to invest. According to experts, working professionals under the unorganized sector can also opt for this scheme to get a pension on retirement. With this pension scheme, you will be able to save taxes under Section 80C even after exhausting the limit of Rs 1.5 lakh. This way you get Rs 50,000 extra deduction if you invest in NPS. Additionally, the investor gets an assured minimum amount of pension irrespective of his/her contribution in NPS.

Public Provident Fund (PPF)

PPF is a long-term investment option and one can deposit a maximum of Rs 1.5 lakh per year under this scheme. However, note that the money invested in PPF remains locked in for 15 years. After the PPF account’s maturity period of 15 years, it can also be extended by a 5-year block. It also comes with the options of early withdrawal, but that too after a certain period of time. For instance, partial withdrawals can be made after 7 years. An advantage is PPF investments and withdrawals are both exempted from tax. Additionally, the corpus received at the time of its maturity as well as the interest earned is exempted from tax.

5-Year FD (Post Office Time Deposit)

Investors looking for fixed income can look at 5-year time deposit. This is considered as an alternative to the bank fixed deposits and term deposits. The interest earned through fixed deposits is added to the investor’s income and is considered as taxable. At the same time, for the investment amount the investor gets the benefit of tax exemption under Section 80C. Note that, to get the tax benefit under Section 80C, investment in this scheme should be for 5 years. If you opt for the fixed deposit of 1 or 2 years, you will not receive tax benefits. This deposit currently offers an interest rate of 7.7 per cent for a 5-year tenure. The interest under this scheme is calculated quarterly and is paid annually.

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Source: Financial Express