Which Deposit is a Tax Saver: 5-Year Fixed Deposit or ELSS

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The financial year-end is drawing close. Many who’ve ignored tax planning all year long will now be panicking and looking for quick-fix tax-saving solutions. Then, there are those who’ve done their tax planning but have fallen a little short and now need a quick-fix to cover up.

The need to find quick solutions brings us several options. But let’s say you’re adequately insured. You have life and health insurance. You’re not feeling strongly either about small savings schemes like PPF, NSC and KVP. You find the rules and paperwork confusing, and you’re not looking to queue up at the nearest post office. You’d rather find an option from the comfort of your couch. Well, you’re in luck. There are some tax-saving options for you as well.

We’ll discuss two of these options here that investors turn to because of the ease with which they can be booked online. These are the tax-saving fixed deposits and equity linked savings scheme.

Overview

Both tax-saving deposits and ELSS funds are long-term investment options with lock-in periods. Both allow you to claim tax deductions up to Rs. 1.5 lakh, though you can invest a higher amount if you so wish.

Tax-saver deposits can be booked with public and private sector banks by individuals and HUFs. You can start with amounts as small as Rs. 500, depending on your bank’s rules.

On the other hand, ELSS funds are diversified equity mutual fund options. Your capital is invested primarily in the stock market, and you earn market-linked returns. While it would be ideal to invest in any mutual fund through SIPs, you can do a one-time lump sum investment to fulfil your urgent tax-saving needs. Most AMCs will require you to invest at least Rs. 1000 for a lump sum investment, while lower amounts are permitted through SIPs.

How To Buy

Investing in either options is easy. Either can be availed by walking into the nearest bank branch or AMC office with your KYC documents and a cheque for the amount you wish to invest. But you can also complete these tasks through the internet.

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