Why ELSS Mutual Fund is Better than other options for tax saving

Options available for TAX Saving under Section 80 C.

  • Insurance Policy
  • ELSS
  • NSC (National Saving Certificate)

ULIP (Unit Linked Insurance Plan) is a combination of insurance and investment into Equity and Debt Funds. ULIP is Nothing but a Combination of Insurance + Investment into Equity And Debt. However the transaction Charges involved is to high. The investment into such funds is long term as much as 20 years. Liquidity in such ULIP are very less because there is a surrender charge as high as 70% if the policy is discontinued within 8 years. Below is the List of Transaction charges charged in ULIP.

  • Allocation Charges :These charges are Charged on your Premium that is paid. The Allocation Charge is as high as 75% in the first year and then comes down to 2% gradually.
  •  Mortality Charges: This is charged for the insurance cover provided by the policy which is keeps increasing over years depending on the age of the policy holder.
  • Policy Administrative Charges: This is charged to maintain the policy and for investing into the securities market. And this charge Keeps increasing over a fixed percentage over the years till your policy is active. 
  • Fund Management Charges: This is charged as to maintain the fund. However this charge cannot be more than 1.35% on the total value of the fund.
  • Surrender Charges: This charged in case you wish to surrender the policy before the entire term of the policy. These Charges are high as much as 100% in case you which to surrender within three years after taking the policy.


Term Insurance Policy: In term insurance is not a investment its only a life cover in case death of the policy holder the policy would pay the insurance cover. In this the premium of the policy remains same for the entire tenure of the  policy. But in case the event doesn’t happen then there is no return on the premium. But people generally mistake term insurance also as an investment.

NSC( National Saving Certificate): NSC are are good option for people looking to get an assured return of 8.8%. It has to be purchased in post office or individual Agents. But this investment wouldn’t help you when you look at it from an investment prospective. Because you have to take the inflation into account which is high as 8% to 10%.

ELSS(Equity Linked Saving Scheme): ELSS is offered by many mutual fund companies in India. ELSS Mutual Fund has a lock in period of 3 years. But the average return an ELSS fund would give is more than 15%. And after three years the fund is free to use. The Transaction cost involved in an ELSS Fund is not more than 2.5% Per Year.

So Always an ELSS Fund is Better than other TAX Saving options available.

One take a combination of a Term Insurance and a ELSS Scheme instead of an ULIP which as High Transaction cost.




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