NPS vs PPF, ELSS, and FDs: Which is the Better Tax-Saving Investment Option

Looking for the best tax-saving option for your portfolio while planning for retirement? With various investment options available, it can become challenging to decide which one best suit your needs. The National Pension Scheme (NPS), Public Provident Fund (PPF), Equity Linked Saving Scheme (ELSS), and Tax Saver Fixed Deposits (FDs) are among the top options.

While each investment instrument offers unique tax benefits, NPS stands out as the perfect choice for tax savings, long-term wealth creation, and retirement security. Let's see how.

Overview of each investment option

NPS, PPF, ELSS, and Tax saver FDs are some popular tax-saving investment options in India. Each of these investments offers unique benefits and serves different financial goals.

-National Pension Scheme (NPS)

The NPS is a government-sponsored retirement savings scheme that allows investors to invest in a mix of equities, corporate bonds, and government securities. Since NPS is linked to the stock market, it has the potential to generate higher returns, typically around 13%, over the long term compared to traditional fixed-income investments.

Additional Read: Difference Between Tier 1 and Tier 2 NPS

Moreover, under the new tax regime, NPS provides triple tax exemptions on contributions, interest earned, and the maturity amount. It also offers the flexibility to choose your asset mix among equity, debt, and alternative investments, depending on your risk appetite and financial goals. Since NPS investments are handled by experienced pension fund managers, they ensure efficient management for long-term growth.

-Public Provident Fund (PPF)

PPF is another government-backed long-term savings scheme offering a fixed rate of return of around 7.10%. While PPF is a safe and reliable investment option, its returns might not be enough to keep up with the rising inflation over the long term.

-Equity Linked Saving Scheme (ELSS)

ELSS funds are mutual funds that primarily invest in equities and have a three-year lock-in period shorter than NPS and PPF. Since ELSS has a higher equity exposure, it also has the potential to generate high returns of around 15.47% (category benchmark). However, it also comes with higher volatility, which increases the investment risk.

-Tax Saver Fixed Deposits (FDs)

Tax-saver FDs are fixed deposits that offer tax benefits and have a lock-in period of five years. They offer guaranteed returns of 6.50% and relatively lower risk as they are not affected by market volatility. However, the returns on tax-saver FDs are typically lower than those of market-linked investments like NPS and ELSS.

Comparing tax benefits

Wrapping up

When compared with other tax-saving instruments like PPF, ELSS, and Tax Saver FDs, NPS is the perfect choice for both tax savings and retirement planning. With its market-linked nature, NPS offers significant wealth creation potential. The scheme's EEE tax benefits, flexibility in asset allocation, and professional fund management further make it an excellent choice for investors.

Secure your future and lower your tax liability—invest in NPS today!