ELSS Vs Tax Saving FDs

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Comparison of Tax Saving Mutual Funds & Fixed Deposits


In this article, we are going to do a comparative analysis of Equity Linked Savings Scheme ie. ELSS Vs Tax Saving FDs. Both are the most popular tax saving options amongst the investors. However, both these investments have their own pros and cons. Let us understand the features of ELSS and Tax Saving FDs.

ELSS Vs Tax Saving FDs

Purpose of Investment

As far as the tax saving options are considered, Equity Linked Saving Scheme (ELSS) and Tax Saving FDs are both tax-saving instruments. Both the investments are eligible for a tax deduction of up to Rs.1.5 lakh under Section 80C of the Income Tax Act.

  1. ELSS :
    • ELSS are Tax Saving Mutual Funds which work like a Multicap funds and give returns in the way of capital gains.
    • The performance of ELSS depends on equity markets and thus, there is some amount of risk associated with it.
  2. Tax Saving FDs :
    • Tax Saving FDs give returns in the way of fixed returns.
    • There is no Market risk associated with tax saving FDs.

Comparison of ELSS Vs Tax Saving FDs

The comparison between ELSS and Tax Saver FD Investment is given below :

ELSS Vs Tax Saving FDs
ELSS Vs Tax Saving FDs
Nature of Investment
  1. ELSS : Investment in Equity Shares and Mutual Funds
  2. Tax Saving FDs : Investment in the Fixed Deposits of the Bank
  1. ELSS :
    • Rate of return is 11% – 15% p.a
    • ELSS can give negative returns too if stock market performance is not good. But if you invest for longer horizon, chances of negative returns are low.
  2. Tax Saving FDs :
    • Rate of return is 7-9% p.a. (Pre-Tax)
    • Tax Saving FDs cannot give negative returns.
Lock in Period
  1. ELSS : 3 years
  2. Tax Saving FDs : 5 years
Taxability of Income
  1. ELSS :
    • LTCG is taxable @ 10% without indexation benefit.
    • DDT @10% is applicable on Dividends.
  2. Tax Saving FDs :
    • Interest on Tax Saver FD is taxable at normal tax slab rates
Risk Associated
  1. ELSS : As the investments are linked with the stock market performance, it is riskier as compared to Tax Saver FD. Market risk comes into the picture.
  2. Tax Saving FDs : Investment in Tax Saver FDs is less risky than ELSS, as it offers guaranteed returns with principal amount.
Best Suitable For
  1. ELSS :
    • First time investors who are willing to invest in equity market. Individuals who are willing to take market risk associated with ELSS.
    • Investors who wish to have a higher rate of return with lower lock-in-period of investment.
  2. Tax Saving FDs :
    • Conservative Investors willing to earn fixed periodic interest

Impact of Taxes on Returns of Tax Saving FDs

As stated earlier, interest on Tax Saver FD is taxable at applicable tax slab rate. Let us now understand the impact of taxes on rate of return.

Impact of Taxes on Rate of Return of Tax Saving FDs
Impact of Taxes on Rate of Return of Tax Saving FDs
  • As we can see, that post tax returns on Tax Saver FD are reduced to 5.5%-7.5% from 8% of pre-tax returns.
  • It is clear from the above illustration that, investment in ELSS a better option as far as the rate of returns are considered.


TDS is applicable on FD interest if it exceeds Rs. 10,000 (Up to FY 2018-19). As per the budget amendment, threshold limit of Rs. 10,000 is increased to Rs. 40,000. For further details with examples, please read our article TDS by Banks on FD and RD Interest.


  • ELSS and Tax Saver FD, both come up with a minimum lock in period. However, there is a large difference in the rate of return provided by them.
  • Investors those who are ready to take risks, have larger investment horizon and interested in investing in Equity can definitely choose ELSS over Tax Saver FD. On the other hand, taxpayers who wish to earn stable income with very low risk can opt Tax Saver FD.

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