ELSS vs FD:What to choose?

Fixed Deposits(FD) in banks if invested for 5 years and Equity Linked Savings Schemes(ELSS) are both good investment options and provide tax benefits under Section 80 C of the Income tax Act.

ELSS is a type of diversified equity scheme which comes with a lock-in period of 3 years offered by mutual funds in India. They offer tax benefits under the Section 80C of the Income Tax Act. You get the dual benefit of tax-saving and wealth accumulation over time.

Fixed Deposit  is a financial instrument provided by banks which provides higher rate of interest than a regular savings account, until the given maturity date. it may or may not require the creation of separate account. 5 year Term Deposit allows deduction under section 80C of the Income Tax Act with a lock-in period of 5 years.

We can understand from below what is good for you:

Parameters	ELSS	Fixed Deposit
Eligibility	All Indian Citizens	All Indian Citizens
Meaning	ELSS is a mutual fund scheme where the funds invested go into market	An FD is a type of deposit where an investor puts his money for a fixed tenure and interest rate. Two types of FDs are available: Regular and tax-saver.
Returns	Higher Returns but depend upon the performance of the equity funds invested	Guaranteed Returns
Lock-in period	3 years	For tax saver FDs lock in period is 5 years
Liquidity	Can’t be liquidated before tenure	Tax saver FDs can only be liquidated after 5 years
Taxability	If capital gains exceed Rs. 1 lac in a financial year then 10% of the additional amount in excess of Rs. 1 Lac.	Interest earned is taxable according to the slab rate applicable

Conclusion:

A good financial portfolio should have both an ELSS Scheme and a fixed deposit. The rate of interest offered on FDs are higher than saving accounts and hence it is a good option.

ELSS fund on the other hand come with certain risks. however SIPs are a good option to put money in as it also inculcates the discipline of saving in a investor monthly.

Both ELSS and fixed  deposits offer good tax benefits and depending upon the investors risk taking capability a suitable decision can be made on what to choose.

You can invest these ELSS funds : (click on the below link)

1. Aditya Birla Tax Relief 96 Fund

2. SBI Long Term Equity Fund

3. Parag Parikh Tax Saver Fund

For more details please contact me.

Disclaimer: Mutual Funds are subject to market risks read all scheme related documents carefully.

CS Shweta Jain

Certified Mutual Fund Advisor