Tax-Saving Heavyweights

ELSS, PPF, ULIPS and NPS are all popular tax-saving avenues. Which should you choose and how does the NPS compare with ELSS?

Saving taxes is often a major objective of investments. And for this purpose, several investment avenues are available. While the Employees' Provident Fund (EPF) is a mandatory deduction, some other available options include the Public Provident Fund (PPF), equity-linked savings schemes (ELSS), the National Pension Scheme (NPS) and unit-linked insurance plans (ULIPs). Under these schemes, one can claim the 1.5 lakh benefit under Section 80C of the Income Tax Act.

Among these options, we have long held the view that ULIPS are neither good as investments nor as insurance. They tend to have high costs and in their pursuit of both returns and insurance, they end up providing neither sufficiently. The PPF is also a popular tax-saving avenue. However, being a debt instrument, it tends to underperform tax-saving funds, which are a pure equity instrument. What about the NPS? It does have an equity component and it's also a retirement vehicle. Launched way back in 2003, it has recently gained investors' attention. Its AUM has grown from ₹1.73 lakh crore to₹ 7.16 lakh crore over the last five financial years. On the other hand, tax-saving funds are also recovering from a dip in flows. As seen in chart 'Back in vogue', both the gross flows and the net flows (after deducting the outflows from the gross flows) have started moving up in FY22.

So, let's compare the NPS and ELSS across a variety of parameters.

Performance