Managing tax efficiently is an art and once you master it, you are equipped to resolve most of your financial issues. This makes it important for individuals to know the various avenues and methods they can use to decrease their tax liabilities. To this effect, a lot of people invest in mutual funds to fulfil their financial goals. Individuals prefer mutual fund investments with the primary aim of benefitting from capital appreciation. What’s more, they also benefit from tax deduction  under Section 80C of the Income Tax Act, 1961. In this article, we’ll shed light on two such investment options available to individuals – ELSS vs NPS and find out which is a better tax saving option.

ELSS fund (Equity Linked Saving Scheme) is a tax-saving mutual fund investment scheme that invests predominantly in equity and equity-related instruments.

ELSS holds an edge over other Section 80C investments. Here’s how:

1. Tax-saving: ELSS is a tax-saving investment vehicle wherein an investor can invest Rs. 1.5 lakh and save up to Rs. 46,800 (assuming the highest slab of income tax i.e. @30% plus education cess 4%) in a particular financial year under Section 80C of the Income Tax Act, 1961.
2. Lock-in period: At 3 years, ELSS schemes relatively enjoy a short lock-in period of all Section 80C investments.
3. Diversification: Since ELSS are also mutual funds, they too are made up of a portfolio of various stocks as diversifying the overall investment portfolio helps risk. 

National Pension Scheme or NPS is a government-sponsored pension scheme which allows employees as well as self-employed individuals to invest and claim tax deductions under Section 80CCD(1). This pension program is a social security initiative by the central government which is open to all employees in the private, public, and even unorganised sectors, except for the armed forces. This scheme encourages employees to invest in a pension account at regular intervals during their employment period.

Investing in the NPS has its own benefits. Let us take a closer look at them.

1. Portable: NPS offers seamless portability across various jobs and locations. As opposed to a lot of pension schemes in India, NPS offers hassle-free arrangement for individuals upon moving to a new job.
2. Well-regulated: NPS is regulated by the Pension Fund Regulatory and Development Authority (PFRDA) which ensures transparent investment norms, performance reviews, and regular monitoring of fund managers through the NPS trust.
3. Dual benefit: Pension wealth accumulation grows until the period of retirement with the compounding effect. Since the account maintenance charges are low, investors benefit significantly from the accumulated pension wealth.
4. Ease of access: Your NPS account can be managed online. It can also be easily opened via the eNPS portal.

To allay any more doubts that you may have regarding the benefits and differences of ELSS and NPS, let us take a look at the below table.

 Since ELSS funds offer an excellent combination of market-linked returns, greater flexibility, tax deductions, and a relatively short lock-in period, they are an ideal investment avenue for individuals and HUF.