ELSS vs Tax Saving FD: Which is better, how much return is getting in which, where to invest?

ELSS vs Tax Saving FD: Which is Better For You:Both Savings Fixed Deposit (FD) and Equity Linked Saving Scheme (ELSS) options are quite popular among investors. Risk-averse investors who want fixed returns prefer bank FDs, while those who are willing to take a little risk to get higher returns prefer ELSS. Although both the schemes come in different asset classes, there are some similarities in them. To decide which of the two schemes is better for you, you will have to know these similarities and differences as well as compare the returns of both.

What is the same between ELSS and tax saving FD?

– Income Tax Exemption:In both the options, exemption is available on investment up to Rs 1.5 lakh under Section 80C of the Income Tax Act.

– Lock-in Period: The lock-in period of ELSS is 3 years, whereas tax saving FD has a lock-in of 5 years.

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What is the difference between ELSS and tax saving FD

• ELSS offer market-linked returns, which depend on the stock market and hence carry more risk.
• Tax saving FD gives fixed returns, which is decided by the bank and there is no market risk.
• There is no tax on ELSS profits up to Rs 1.25 lakh in a financial year after 3 years; 12.5% ​​LTCG tax has to be paid on long term capital gains of more than Rs 1.25 lakh.
• Interest income from tax saving FD is fully taxable, on which income tax is levied as per the tax slab of the investor.
• ELSS comes with high risk along with high return potential. However, the risk can be reduced slightly by investing through SIP.
• Tax saving FD is a safe option and investors get guaranteed fixed returns.

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Comparison of returns of tax saving FD and ELSS

Let us now see what is the average annual return of both the schemes. For this, we will compare the average annual return of the last 5 years of direct plan of tax saving ELSS scheme with the interest rates of tax saving FD with lock-in of 5 years. First of all, let’s take a look at the past returns of the top 10 tax saving ELSS schemes of the country:

Returns of Top 10 Tax Saving ELSS Funds

(5 Year Average Annual Return – CAGR):

1. Quant ELSS Tax Saver Fund (Direct): 37.61%

2. Bank of India ELSS Tax Saver Fund (Direct): 28.63%

3. SBI Long Term Equity Fund (Direct): 27.87%

4. Motilal Oswal ELSS Tax Saver Fund (Direct): 26.69%

5. Parag Parikh ELSS Tax Saver Fund (Direct): 26.47%

6. Bandhan ELSS Tax Saver Fund (Direct): 25.95%

7. DSP ELSS Tax Saver Fund (Direct): 25.03%

8. JM ELSS Tax Saver Fund (Direct): 25.03%

9. Canara Robeco ELSS Tax Saver (Direct): 24.53%

10. Mirae Asset ELSS Tax Saver Fund (Direct): 24.41%

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And now let us see how much interest many major banks of the country are paying on tax saving FDs with 5 years lock in.

Tax saving FD interest rates of top 10 banks

1. SBM Bank India: 7.75% (8.25% for senior citizens)

2. YES Bank: 7.25% (8.00% for senior citizens)

3. DCB Bank: 7.40% (7.90% for senior citizens)

4. IndusInd Bank: 7.25% (7.75% for senior citizens)

5. RBL Bank: 7.10% (7.60% for senior citizens)

6. Axis Bank: 7.0% (7.75% for senior citizens)

7. HDFC Bank: 7.0% (7.50% for senior citizens)

8. ICICI Bank: 7.0% (7.50% for senior citizens)

9. Karnataka Bank: 6.50% (7.00% for senior citizens)

10. Bank of Baroda: 6.50% (7.15% for senior citizens)

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Which option to choose?