NSC vs ELSS: Compare which is the best for tax saving & why?


The mutual fund industry’s total Assets Under Management (AUM) reached ₹ 50.78 lakh crore for the first time in December 2023, clearly indicating the increasing trust that Indian investors place in mutual fund investments to grow their wealth. Investors who wish to grow their wealth and save taxes in the process generally consider investing in equity-linked savings scheme (ELSS) mutual funds. Investors also consider other tax-saving investmentsbesides ELSS funds, such as the National Savings Certificate or NSC. This article highlights the key differences between these two tax-saving investment optionswhich can help investors with choosing between the two.

What is ELSS,and how can NSCs help investors save tax?

ELSS mutual funds and National Savings Certificates are tax-saving options that investors can use to save taxes levied on their investments. An ELSS tax-saving scheme is a diversified mutual fund scheme that invests in equities. ELSS funds have a lock-in period of three years, and these funds help investors avail an income tax deduction under Section 80C of the Income Tax Act. On the other hand, any Indian citizen can sign up for an NSC by visiting a post office branch in India. Investors can invest a minimum of ₹1000 in NSCs. Do note that with NSCs, investors must also adhere to a lock-in period of five years. National Savings Certificates are low-risk investments that offer tax benefits up to ₹1.5 lakh under Section 80C of the Income Tax Act.

A comparison of both tax-saving options: ELSS vs NSC

Here is a point-by-point analysis of the key features of ELSS mutual funds and National Savings Certificates. Investors can consult this section to select the investment of their choice to save taxes via their investments:

  • ELSS funds and NSCs have different minimum investment amounts. An investor who wishes to make an ELSS investment can start with a minimum amount of ₹500 whereas investors who wish to invest in NSCs can start at ₹1000 and continue investing in multiples of ₹100.
  • The maximum investment amount that can be claimed by the investor as a tax deduction is ₹1 lakh in both cases.
  • The lock-in period for ELSS investments is three years, whereas the lock-in period is five years for National Savings Certificates.
  • Since ELSS mutual funds primarily invest in equities, they are considered to be high-risk investment options. However, National Savings Certificates are low-risk investment options.
  • National Savings Certificates offer the assurance of guaranteed returns to the investor. In the case of ELSS funds, the returns are not guaranteed.
  • Both ELSS funds and NSCs offer a tax deduction to customers under Section 80C of the Income Tax Act.
  • The interest earned through an NSC investment is taxablewhereas the amount that the investor received at the time of an ELSS fund’s maturity is not taxable.

Investors can save up on taxes by signing up for either National Savings Certificates or ELSS funds. However, they must consider all the features of both investment schemes before doing the same. Investors must also consider using an ELSS returns calculator to plan their ELSS returns before signing up for the scheme.