Here we look at 5 different investment schemes one can use for investment and tax saving purpose
FD:
- A fixed deposit plan is a risk-free investment tool that offers investors guaranteed returns.
- The money you park in an FD is locked in for a given period varying from 5 years to 10 years.
- FD rates are fixed when you open the account and remain constant throughout the investment period, ensuring stable returns.
- However, the interest rates applicable on an FD account will vary as per the tenor of investment.
- The principal amount plus the compounded interest on the sum is payable only at the end of this investment tenor.
NPS:
- The NPS (National Pension Scheme) which is a government-sponsored pension programme started in 2004.
- While initially only open to central government employees, the scheme’s eligibility window was expanded in 2009 to include employees from the public, private and unorganized sectors.
- The National Pension Scheme is not open to those employed in the Armed Forces.
- Under NPS, you have to invest small proportions of your salary every month to ensure a steady pension during your retirement years.
- Pension from NPS scheme details investments that are guaranteed since the programme is administered and regulated by the Pension Fund Regulatory and Development Authority (PFRDA).
NSC:
- One can buy government regulated certificates from post offices.
- This is a five-year fixed income savings bond investment scheme.
- One can invest a minimum of Rs 1000 and further in the multiples of Rs 100. There is no upper limit.
- A single holder type certificate can be purchased by an adult for himself or on behalf of a minor or by a minor.
- Deposits qualify for tax rebate under Sec. 80C of IT Act. The interest accruing annually but deemed to be reinvested under Section 80C of IT Act.
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.
ELSS:
- Equity-linked savings scheme is an open-ended Equity Mutual Fund
- 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.
- Investors planning to invest for longer periods ranging from 5 to 7 years should opt for this equity scheme.
Comparison of different Investment schemes
| Features | Tax saving FD | NPS | NSC | PPF | ELSS |
|---|---|---|---|---|---|
| Eligibility / Who can invest? | - Resident Individuals (18+) - Non Resident Individuals - HUF - Minor can also invest jointly with an adult |
- Resident Individuals (18 - 70 yr) - Non Resident Individuals (18-70 yr) |
- Resident Individuals (10+). - Jointly (up to 3 adults), - guardians on behalf of a minor. |
- Resident Individuals (18+) [one account per individual]. | - Resident Individuals (18+) - Non Resident Individuals - HUF |
| Tax on returns or interest | - Taxable on Interest Earned (as TDS) | - 25% is exempt from tax on premature withdrawal. - 40% is exempt from tax on maturity withdrawal. |
- Taxable on Interest Earned (as TDS) | - No Tax on Interest Earned | - Taxable on Interest Earned (as Capital Gain) |
| Tax Benefit / Tax Deduction on Contribution | Eligible for 80C deduction | Eligible for Sec 80CCD (1) and 80CCD (1B) deduction ** There is no tax benefit on investment towards Tier II NPS Account. |
Eligible for 80C deduction | Eligible for 80C deduction | Eligible for 80C deduction |
| Minimum Investment Amount | 1000 Rs | No minimum limit | 1000 Rs | 500 Rs | 500 Rs |
| Maximum Investment Amount | No upper limit, | No upper limit | No upper limit | 1.5 lakh | No upper limit, |
| Maximum Tax Deduction | 1.5 lakh | 2 lakh | 1.5 lakh | 1.5 lakh | 1.5 lakh |
| Interest Rates / Returns | 6 - 7 % | 9 - 12 % | 6 - 8 % | 7 - 8 % | Upto 20% ** Market dependent |
| Tenor/Investment period/What is the maturity period? | lock-in period of 5 years | Till age of 60 years | lock-in period of 5 years | 15 year | lock-in period of 3 years |
| Premature Withdrawal / Partial Withdrawal | No | Yes Govt Sector: - Complete (100%) Lump sum withdrawal allowed if the corpus is equal to or below ₹ 2.5 Lakh. - Complete (100%) Lump sum withdrawal allowed if the corpus is equal to or below ₹ 2.5 Lakh. - If the corpus is higher than ₹ 2.5 Lakh, then 20% can be withdrawn. Non Govt Sector: - 10 Years mandatory subscription - Complete (100%) Lump sum withdrawal allowed if the corpus is equal to or below ₹ 2.5 Lakh. - If the corpus is higher than ₹ 2.5 Lakh, then 20% can be withdrawn. |
No | Yes Premature closure of the PPF account is allowed only 5 financial years after the account is opened. 1% penalty is levied from the actual rate of interest that was given by the account |
No |
| Loans against investment | No | No | Yes | Yes (up to 25% between 3rd to 6th year) | Yes |
| Matured Sum | 100% of the matured sum | - Complete (100%) matured sum, if the corpus is less than or equal to ₹ 5 Lakh. - If the corpus is more than ₹ 5 Lakh, 60% can be withdrawn. - In case of death after 60 years, a lump sum is paid to the nominees. |
100% of the matured sum | 100% of the matured sum | 100% of the matured sum |
| What is the investment limit? | No Limit | No Limit | No Limit | 1.5 lakh per year | No Limit |
| Are NRIs eligible for this scheme? | Yes | Yes | No | No | Yes |
| Risk / Risks Involved | Low Risk ** only risk is FD provider |
Risky ** Returns depend on the investment and market |
Very Low Risk | Very Low Risk | Risky ** Returns depend on the investment and market |
| Safety | Provided by Banks and financial institutes hence depends on the stability of the entity. | Come under Pension Fund Regulatory and Development Authority which is under the jurisdiction of Ministry of Finance of the Government of India | Come under India Post, under the jurisdiction of Ministry Of communication of the Government of India | The scheme is fully guaranteed by the Government of India | Provided by financial institutes hence depends on the stability of the entity. |