Income Tax return: ELSS vs ULIPs vs NPS - Which scheme helps to save more tax, get better returns

Investors often confuse a tax saving scheme to lower returns. It is important to understand that even a good tax-saving investment must be an investment first and a tax-saver later. Three popular products that help save tax and deliver decent returns are - Equity-Linked Savings Scheme (ELSS), Unit Linked Investment Plans (ULIPs) and National Pension Scheme (NPSS). All three schemes come with different features and target different investors. Equity-Linked Savings Scheme (ELSS) is one of the most populat investment options among people in India. The fund management or mutual fund companies invest in a portfolio of mutual funds certified under expertise of investment experts. Investment in these mutual funds are eligible for tax deductions making it a great tax saving cum rewarding option. 

ELSS does not have an upper limit on the amount that can be invested. However, the tax exemption is fixed at Rs 1.5 lakh in a financial year, which means that a tax payer will pay Rs 46,000 less tax in case of the highest tax bracket. This exemption of Rs 1.5 lakh of investments is not limited to ELSS only, its is the maximum exemption limit can be used by combining several investment options under section 80C of Income Tax Act.

ULIP or Unit Linked Insurance Plan is a mix of insurance and investment which comes with tax benefits under Section 80C. Under ULIP, a part of the investment goes towards life insurance while other is invested on equity or debt or both, depending upon the investor's goals. This scheme comes with a lock-in period of five years. 

National Pension Scheme or NPS is a product designed to build corpus for retirement. NPS offers additional deduction of Rs 50,000 under 80CCD and is regulated by PFRDA (Pension fund regulator under Govt of India).

Where to invest for better returns?

The investors needs to define their goals before deciding the product. ELSS could be a great tool to multiply money as it provides saving on taxes and good returns both. The investments should never be considered good until they proclaim high returns with viable risks. NPS is ideal for retirement planning while ULIP is good for those who want insurance for the same amount. 

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Sr. Technical Research Analyst, Rohit Singre, LKP Securities told Zee Business Online that a new investor should always start with mutual funds and then move to other options. 

"A new investor should always prefer investing with mutual funds at the initial phase, however once, they get to know, how the market operates, they can go for investments on their own." he said. ''ELSS is a viable tax saving as well as return oriented investment tool as compared to other options as it is completely based on equities unlike ULIP,'' Singre added.