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Mutual Funds - What is difference between ELSS and Taxing saving FD

17 Aug 2016

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Both ELSS and tax saving fixed deposits are great investments for section 80C deduction of income tax act. However, there are some basic differences one should be understood before taking an investing decision.

Factors

ELSS

Tax Saving FD

Investment

ELSS is an equity mutual funds which invests primarily in shares or shares related investments

It’s special fixed deposit made with any bank for at least 5 years.

Returns

The returns in ELSS is not fixed and is completely dependent on equity market’s performance.

The returns obtained are fixed and known to an investor at the time of deposit. Each bank has their own interest rate. Generally it varies from 6.5%-7.5%.

Risk

There is no guarantee of principal safety in ELSS. However, equity investments generally give positive returns on the long-term. As per our research, BSE SENSEX has delivered an annual return of 12.78% in past 10 years.

Tax saving FDs are as safe as Normal fixed deposit of banks.

Liquidity

Amount Invested in ELSS can be withdrawn any time.

Tax saving FDs can’t be withdrawn within 5 years of investment

Tenure

The tenure ranges from three years till any time period as per choice of investor

The minimum tenure is 5 years while the maximum tenure is 10 years.

Lock in period

There is a lock-in period of 3 years in ELSS

There is a lock in period of 5 years involved.

Online

ELSS can be done Online. An investor can invest or sell ELSS fund any time

Some private banks have started offering Tax saving FDs online, but a majority of banks don’t have online facilities.

Further, we advise you to consult your financial advisor or check your risk profile before making an investing decision.

 

Source: eCRM Team BACK

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