NSC vs ELSS


Choosing between NSC and ELSS depends on your risk appetite and goals. NSC is a safe, government-backed certificate with guaranteed returns (around 7.7% currently) but locks your money in for 5 years. While, ELSS is a mutual fund scheme that invests in stocks and offers potentially higher returns, but, with a higher market risk. Moreover, ELSS has a shorter 3-year lock-in period.

This webpage will explore the differences between NSC and ELSS to help you choose a better investment option that suits your financial needs.

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NSC vs ELSS - The Key Differences

The table below shows the key differences between NSC and ELSS schemes:

Parameter NSC ELSS
Investment Type Small savings scheme (post office) Mutual fund scheme
Return Type Guaranteed Market-linked
Minimum Investment ₹1000 ₹500
Lock-in Period 5 years 3 years
Tax Benefit Up to ₹1.5 lakh under Section 80C (interest taxable) Up to ₹1.5 lakh under Section 80C (LTCG tax on gains exceeding Rs. 1 lakh)

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Understanding National Savings Certificate (NSC)

The National Savings Certificate (NSC) is a low-risk investment scheme introduced by the Indian government. It caters to individuals seeking a safe and guaranteed way to grow their money. You invest a specific amount for a fixed term of 5 years and earn a predetermined interest rate set by the government throughout the period. This interest rate is currently around 7.7%, but it can be revised periodically. So, you know exactly how much you'll get upon maturity, making it a good option for risk-averse investors who prioritize capital protection and predictable returns.

Highlights of National Savings Certificate (NSC):

Interest rate 7.70% p.a.
Tenure 5 years
Minimum Deposit ₹1000
Maximum Deposit No limit

Understanding Equity Linked Saving Scheme (ELSS)

ELSS, or Equity Linked Saving Scheme, is a mutual fund product in India that lets you invest in the stock market while saving on taxes. Unlike guaranteed returns of NSC, ELSS returns depend on stock market performance, so there's a chance of higher gains but also potential losses. It carries more risk than NSC but comes with a shorter lock-in period of 3 years. ELSS is suitable for investors who are comfortable with some risk and looking for potentially higher returns.

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Highlights of Equity Linked Saving Scheme (ELSS):

Potential Returns 15% - 18% p.a.
Minimum Investment ₹500
Maximum Investment No limit
Lock-in Period 3 years

Which Option is Better, ELSS or NSC

Choosing between NSC and ELSS depends on your risk tolerance and financial goals. Here's a breakdown to help you decide:

Choose NSC if:

  • You prioritize guaranteed returns and low risk. Even if the returns are lower (around 7.7% currently), you are assured of getting your principal amount back with interest.
  • Your investment horizon aligns with the lock-in period (5 years). You won't need the money before maturity.
  • You are a risk-averse investor who prefers stability over potentially higher returns.

Choose ELSS if:

  • You are comfortable with some risk for potentially higher returns. Historically, ELSS funds have offered returns in the range of 12-15%, but there's always a chance of losses due to market fluctuations.
  • Your investment horizon is at least 5-7 years to ride out market ups and downs and benefit from potential growth.
  • You are looking for a tax-saving investment along with the potential for capital appreciation.

Compare NSC with other investment options from below:

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Frequently Asked Questions

The National Savings Certificate (NSC) is a low-risk investment program offered by the Indian government. You invest a fixed amount for 5 years and earn a guaranteed interest rate.

ELSS, or Equity Linked Saving Scheme, is a type of mutual fund that invests your money in the stock market. It offers potentially higher returns than NSC but also carries more risk.

NSC has a lock-in period of 5 years, while ELSS has a shorter lock-in period of 3 years.

Both NSC and ELSS qualify for tax deductions under Section 80C of the Income Tax Act. However, NSC interest is taxable, while ELSS gains exceeding ₹1 lakh are subject to Long-Term Capital Gains (LTCG) tax.

NSC offers guaranteed returns (around 6.8% currently), while ELSS has the potential for higher returns (historically 12-15%) but also carries the risk of losses.

NSC is suitable for risk-averse investors who prioritize guaranteed returns and a short-term investment horizon matching the lock-in period. ELSS is suitable for investors comfortable with some risk for potentially higher returns over a long-term horizon (ideally 5+ years).

Yes, you can combine NSC and ELSS in your portfolio to balance risk and reward. NSC provides stability, while ELSS offers the potential for growth.

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