ELSS vs FD: Retail investors are often confused about where to invest their savings – in shares, government schemes or bank deposits? The three most popular options are the Equity Linked Savings Scheme (ELSS) and Fixed Deposit (FD). Let us understand which of these options is better for whom.
ELSS
Equity-Linked Savings Schemes are a type of mutual fund that offers a deduction of up to Rs 1.5 lakh per year under Section 80C (under the old tax system). These mutual funds invest in equities. Their lock-in period is three years. ELSS funds have generated an average annual return of 17.10% over the past three years. As per SEBI’s classification of mutual fund schemes, ELSS mutual funds are required to invest at least 80% of their assets in stocks as per Equity Linked Savings Scheme, 2005.
Fixed Deposits (FD)
Fixed deposits are a type of investment in which individuals deposit a lump sum amount with an NBFC or bank for a fixed period. Upon maturity, individuals receive the principal amount plus the interest earned. They typically offer a slightly lower interest rate, around 6-6.5 percent per annum. They are not tax-deductible; the interest earned is taxable.
Which option to choose?
If you have the ability to tolerate market risk and expect good returns over the long term, ELSS is a better option. However, if you want to avoid market risk and earn fixed returns through safe investments, investing in FDs is a better option. Always keep in mind that FDs and ELSS are very different investment options. Choosing the right scheme for you should take into account your specific needs and financial circumstances.
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