Tax Saving Schemes in India 2021 | 80C Investment Options Comparison | Tax Saving Investment India
In this video, 7 tax savings schemes in India have been compared. All these tax saving investment options provide tax benefit under section 80C of Income tax.
Following questions are answered in this video:
1) PPF vs LIC which is better
2) FD vs NSC vs PPF
3) ELSS vs PPF
4) NSC vs FD for 5 years
5) LIC vs Sukanya Samriddhi Yojana
6) PPF vs Mutual Fund
7) PPF vs Sukanya Samriddhi Yojana
8) LIC vs Term Insurance which is better
9) ULIP vs ELSS
10) ULIP vs Term Insurance
11) ULIP vs LIC
I’ve compared the schemes on following aspects:
1) Return – How much return can you expect from the scheme?
2) Lock in period – How many years do you need to keep your money into that scheme?
3) Risk – Is the risk low or high in that scheme?
4) Taxation of returns – This is an important point. All these schemes give same tax deduction benefit under section 80C. But not all schemes have the benefit of their returns not being taxed.
5) My recommendation – Finally, considering all the factors, whether I recommend you to invest in that scheme or not?
Schemes compared:
1) 5 year Fixed Deposit
2) National Savings Certificate or NSC
3) LIC Endowment Plans and LIC Moneyback Plans
4) Sukankya Samriddhi Yojana
5) Unit Linked Insurance Plan or ULIP
6) Public Provident Fund or PPF
7) Equity Linked Savings Scheme or ELSS
So, here is my analysis.
1) 5-year Fixed Deposit
Return: 5-5.5%
Risk: Low
Lock in: 5 years
Taxation on returns: Yes!
My recommendation: No, NSC is better than this
2) NSC – National Savings Certificate
Return – 6.8%*
Risk – Very low as this is a govt. backed scheme
Lock in – 5 years
Taxation on return: No!
My recommendation: Higher returns than 5 year FD, same lock in period and no tax on returns makes NSC a much better option than 5 year FD. Invest in NSC if you want to invest in safe schemes for medium term goals.
3) LIC endowment/money back kind of plans
Return: 4-5%
Risk: Low
Lock in: Varies (few to many years)
Taxation on returns: No!
My recommendation: Not recommended. You invest in these policies for safe return and insurance. You can achieve much greater returns and much larger insurance coverage by putting the same amount of money in PPF + a term life insurance policy.
4) Sukanya Samruddhi Yojana
This scheme is relevant for you only if you have a daughter who is less than 10 years of age.
Return: 7.6%
Risk: Very low
Lock in: 21 years or you can withdraw partially for your girl child’s education or wedding.
Taxation on return: No!
My recommendation: A good option as it gives higher return than FDs, NSC. Invest in SSY specifically for your daughter’s wedding or education and if you are not comfortable taking risk. If you are willing to take risks with market, ELSS will be a better option for long term as that will give you higher returns.
5) ULIP
Return: 7-10% (some good ULIPs can give you even higher returns)
Lock in: 5 years
Risk: High as money is invested in markets
Taxation on returns: No!
My recommendation: ULIP is similar to endowment plans with difference being that money is invested in markets which can give you higher returns. But, exorbitant charges on ULIPs and very low insurance coverage makes it a less lucrative option. If you are willing to take risks with ULIPs, better go with a combination of ELSS + Term life insurance plan. With same money, you will earn much higher returns and also get a very high insurance coverage.
6) PPF
Return: 7.1%*
Lock in: 15 years
Risk: Very low
Taxation on returns: No!
My recommendation: Many people will tell you how PPF is the worst option as there is a lock in of 15 years and it gives you low return. But, in my opinion, PPF is a very good option if you want to invest for long term and you don’t want to take risk. Compare PPF with endowment plans where you will get just 4-5% returns.
If you are willing to take risks in long term, then you have ELSS which is hands down a better option than PPF.
7) ELSS
Return: 12-15%
Lock in: 3 years
Risk: High
Taxation on return: Yes! Long term capital gains tax is applicable.
My recommendation: ELSS has the potential to give highest returns amongst all the schemes but it comes with market risks. After all, it’s an equity mutual fund. Unlike ULIPs, charges or expense ratio on ELSS are far lesser which creates significant difference between returns of ULIPs and ELSS, despite both being market linked schemes. Returns on ELSS are taxed at 10% LTCG, but despite that, you can expect to earn a higher post tax return on ELSS as compared to other schemes.
Therefore, I recommend combination of ELSS + Term life insurance over ULIP.
Another important point to note is that although ELSS has a lock in of just 3 years, don’t invest in ELSS just for 3 years. It’s meant for long term investment as its an equity mutual fund. Invest only if you can wait for at least 7-8 years.
