Investing is a crucial aspect of financial planning, and individuals often find themselves weighing the pros and cons of various investment options. Fixed Deposits (FD) and Equity Linked Savings Schemes (ELSS) are two popular choices, each offering distinct features and benefits.
In this article, we will delve into the characteristics of FD vs. ELSS to help investors make informed decisions based on their financial goals and risk tolerance.
Here are a few key differences you must know while exploring fixed deposit vs..
Parameter |
Fixed Deposit |
ELSS |
Risk |
Low-risk investment |
Exposed to market fluctuations, resulting in higher risk |
Return Profile |
Offer a fixed interest rate over a predetermined period |
Potential for higher returns as they invest primarily in equities and related instruments |
Lock-in Period |
|
Three years |
Tax Implications |
|
|
Hedge against Inflation |
|
|
Loan/overdraft facility |
Available on regular FDs |
Not available |
Fixed Deposit and Other Investment Comparisons |
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Returns on FDs are fixed and lower compared to the potentially higher returns offered by ELSS, which are linked to the performance of the equity market.
FDs, especially Tax-Saving FDs, offer deductions under Section 80C of the Income Tax Act. ELSS also qualifies for Section 80C deductions, making it a popular tax-saving option with the added potential for higher returns.
FDs are considered low-risk with capital protection, while ELSS involves market risk. ELSS returns can be volatile as they depend on the performance of the equity market.
FDs may have penalties for premature withdrawals. ELSS has a lock-in period of three years, during which redemption is not allowed. After three years, ELSS units can be redeemed without any exit load.