NPS vs ELSS
5paisa Research Team
Last Updated: 08 Aug, 2024 08:59 PM IST
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Content
- Who Should Invest In NPS And ELSS?
- Who should consider ELSS?
- Difference Between NPS And ELSS
- How Does The Performance Of NPS And ELSS Compare Over The Years?
- ELSS Vs. NPS: Which Approach Is Better?
- Conclusion
Let's start by understanding what these two investment options are all about.
a. NPS (National Pension System): Think of NPS as a piggy bank for your retirement. It's a government-backed savings scheme that helps you save money for your golden years. When you invest in NPS, your money is managed by professional fund managers who invest it in a mix of stocks, government bonds, and other financial instruments. The goal is to grow your money over time to have a nice nest egg when you retire.
Key features of NPS:
- Long-term investment focused on retirement planning
- Offers tax benefits under Sections 80C and 80CCD of the Income Tax Act
- Allows you to choose how your money is invested (more on this later)
- Has a lock-in period until retirement age (usually 60 years)
b. ELSS (Equity Linked Savings Scheme): ELSS is like a regular mutual fund but with a tax-saving twist. When you invest in ELSS, your money goes into the stock market. Fund managers use your investment to buy shares of different companies, aiming to grow your wealth over time. The "savings scheme" comes from the tax benefits you get from investing in ELSS.
Key features of ELSS:
- Invests primarily in stocks (at least 65% of the fund)
- Offers tax benefits under Section 80C of the Income Tax Act
- Has a shorter lock-in period of just 3 years
- Potential for higher returns, but also higher risk due to stock market exposure
NPS and ELSS can help you save on taxes, but they work differently and suit different financial goals.
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Frequently Asked Questions
NPS primarily focuses on retirement planning, aiming for steady, long-term growth with a balanced risk approach. Conversely, ELSS targets wealth creation and tax saving through equity investments, potentially offering higher returns but with more market risk.
NPS offers various investment choices, allowing you to allocate your money between equity, corporate bonds, and government securities. ELSS primarily invests in stocks, with at least 65% of the fund in equity, offering less flexibility but potentially higher returns.
NPS has stricter withdrawal rules, typically allowing full access only at retirement age (60 years), with some partial withdrawal options. ELSS has a 3-year lock-in period, after which you can freely withdraw your investments without any restrictions or tax implications.