InvestorQ : Which are the best options for saving tax under 80C - PPF, Insurance, Mutual funds or NPS?
Purvesh made post

Which are the best options for saving tax under 80C - PPF, Insurance, Mutual funds or NPS?

Archita Jajjoo answered.
2 years ago
Well, if you are looking for an investment option that is best universally, then let me tell you that you might be disappointed, as the best investment option is best according to the risk profile and one’s investment objective and it varies from person to person. Under Chapter VI of the Income-Tax Act 1949, there are several deductions defined under Section 80, the most common among taxpayers is Section 80C, the maximum deduction available under this section is Rs. 200,000 (with an additional deduction for National Pension Scheme, of Rs. 50,000).

So, let’s discuss how these deductions are different and suitable for different individuals:

1) Public Provident Fund (PPF): It can be suitable for those investors who are looking for a protected investment and can block their money for at least 15 years. You can enjoy deduction under Section 80C, hence it has tax benefits as well. However, returns are less attractive than other investment options. Let us understand this with an example: Suppose your PPF investment has a lock-in period of 15 years and you invest Rs. 5,000 monthly. Considering the interest rates offered on your PPF account, you could be able to make Rs 17.8 lakhs in 15 years.

2) Equity Linked Saving Scheme: on the other hand, it would have generated a corpus of around Rs. 26.33 lakhs in the same time frame, under ABSL Tax Relief 96 Fund, being the oldest and modest. This investment is suitable for those who are ready to take the extra risk due to equity and does not need much tax benefits. As any gain arising on sale of investment shall be taxable as Capital Gain. Hence, high risk and no tax benefits.

3) National Pension Scheme: would create a corpus of around Rs 21 lakhs after 15 years and investment of Rs. 5,000 per month, assuming the rate of return to be 10%. It is a good investment option for an investor who has a moderate risk profile. Investment in NPS shall also enjoy tax benefits, so it can be a good option if tax-saving is also an objective of your investment.

4) Unit Linked Insurance Plans (ULIPS): If you consider the past performance of around 7 years, ULIPs are estimated to generate a corpus of around Rs. 27.5 lakhs, in the given time-frame. This could be a great investment option for those who have a moderate risk profile, wants to enjoy tax benefits and are willing to maintain a great combination of debt and equity in their investment portfolio.

As it is clear that, if you consider the return factor, ELSS and ULIPs top the list. However, the return shall not be the only factor to consider before investing, there are other factors as well, such as risk, savings, tax benefits, etc. You should choose an investment that best suits your needs.