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NPS or ELSS – Where to invest money for the better return?


NPS, ELSS and other tax saving instrument are generally evaluated by investors during last quarter of the financial year. A year is about to end and if you are unable to decide between tax saving investment options NPS and ELSS this post is for you. In this post, I will share information about NPS and ELSS. Additionally, we will also debate about expected return offered by both investment instruments.

NPS or ELSS – Where to invest money for the better return?


NPS stands for National Pension Scheme. NPS is retirement saving scheme by the government. NPS is designed to institutionalize habit of systematic saving by the investor. NPS offers multiple tax benefits under section 80C and section 80 CCD (1B).

Also Read – NPS Mobile App for National Pension System Subscribers

  • Once you open NPS account one unique permanent retirement account number (PRAN) will be allocated to you.
  • Under NPS you need to make a minimum contribution of Rs.6000 every year. This contribution is required till 60 years age.
  • NPS discourages withdrawal of funds. If you stay invested in NPS till retirement age 60, you are allowed to withdraw 60% corpus at retirement age. You need to buy an annuity for the remaining 40% of corpus. This account is known as Tier 1 account.
  • If you withdraw fund from NPS before retirement age 60, you need to compulsory buy annuity for 80% of corpus at retirement age. You can withdraw remaining 20% fund. This account is known as Tier 2 account.
  • For Tier 1, no scheme preference is offered. However, if you opt for Tier 2 account you can select from Equity, Corporate bonds and Government Securities funds. The maximum exposure to equity cannot be more than 50%.

Advantage of NPS

  • NPS offers additional tax benefit of Rs.50000 under section 80 CCD(1B) apart from 80 C.
  • NPS is backed by the government of India.
  • Average charges applicable on NPS is very low.

Disadvantage of NPS

  • At retirement age, you have to buy an annuity.
  • Annuities lock up the money for life and offer very low rates.
  • Withdrawal money at the maturity is taxable as per applicable tax slab.

Also Read – How to open NPS account online?


ELSS stands for Equity Link saving scheme. ELSS is mutual fund scheme managed by professional fund managers. ELSS allows investment in a lump sum or via SIP way. ELSS is a proxy to direct equity investment. ELSS offers a tax benefit under section 80 C.

  • An ELSS is a diversified equity mutual funds which has a majority of corpus invested in the equity market.
  • Under ELSS selection of funds will be purely done by you. ELSS comes with default lock in period of 3 years.
  • You can sell or hold ELSS fund after 3 years of lock in period.
  • ELSS comes with either dividend or growth options. If you select dividend option regular dividend will be payable during the holding period of the fund.
  • The return offered by ELSS is tax-free in nature.
  • You have to be careful while making fund selection otherwise you will end up making losses.

Advantage of ELSS

  • ELSS offers a tax benefit under section 80 C.
  • Lock in period of ELSS is only 3 years compare to NPS.
  • ELSS offers very good return compare to NPS as a majority of investment is made in equity.

Disadvantage of ELSS

  • ELSS is risky investment option.
  • Under ELSS you need to select your fund option on your own.

NPS or ELSS – Where to invest money?


NPS is very good long term investment option backed by the government. However, return offered by NPS is limited as equity exposure is limited by 50%. NPS also has limitation of annuity and lock in period.

Low return and withdrawal imitation make NPS less attractive option.

ELSS is much better option for investment. You have full freedom for the fund selection. You can withdraw money any time after 3 years. No tax is applicable at the withdrawal. As equity exposure of ELSS is high, ELSS is expected to give better return compare to NPS.

So, don’t get attracted only for the tax benefits. Go for ELSS one of the best tax saving investment instrument.

Shitanshu Kapadia
Shitanshu Kapadia
Hi, I am Shitanshu founder of moneyexcel.com. I am engaged in blogging & Digital Marketing for 10 years. The purpose of this blog is to share my experience, knowledge and help people in managing money. Please note that the views expressed on this Blog are clarifications meant for reference and guidance of the readers to explore further on the topics. These should not be construed as investment , tax, financial advice or legal opinion. Please consult a qualified financial planner and do your own due diligence before making any investment decision.