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As you earn money to safeguard your financial well-being, it is equally important to invest it. Investments allow you to reap benefits in the short- to long-term, protecting it from erosion due to inflation. 


Broadly speaking, you usually have the choice between two types of investments. Your first option are market-linked investment avenues that have higher risks, but offer high returns. On the other hand, you have safe investments and the returns you get are usually lesser than market-linked schemes.


An example of two such options are the FD and Equity Linked Saving Schemes (ELSS). These investment tools offer the benefit of growing your wealth, but do so through different mechanisms. 


Let’s take a closer look at the ELSS vs FD debate.

Difference between ELSS vs Fixed Deposit

Here are a few key differences you must know while exploring FD vs ELSS.




Who can invest?

Indian citizens

Indian citizens

What is it?

ELSS is a type of mutual fund where your money is invested in equity markets

An FD is a type of deposit where you invest a specific amount for a fixed tenor and interest rate


Returns depend on the performance of the equity fund you invest in

Guaranteed returns


Prone to risks

Low to nil risk

Lock-in period

3 years

For tax saver FDs, the lock-in period is 5 years, but for other FDs, the tenor is flexible


Cannot be liquidated before the end of your tenor

Regular FDs can be liquidated at any time, but tax-saver FDs can only be liquidated after 5 years

Online facility



Loan/overdraft facility

Loan/overdraft option not available

Loan can be taken against regular FD, but cannot be taken against tax-saver FD

Taxable returns



Get credit card against investment

Credit cards cannot be issued against ELSS

Credit card can be availed against regular FD, but not against tax-saver FD

Joint investment option



Comparison between Tax-saver FD vs ELSS

Here’s a comparison of tax-saver FD vs ELSS and other types of FD.

1. Security of Investment

An FD is a more secure form of investment as compared to ELSS. You receive assured returns with a fixed deposit. However, your returns on ELSS depends on market performance.


FDs are suitable for conventional investors as they prefer to invest where low risk is involved. ELSS schemes are best for those who wish to earn higher returns and enjoy tax deductions on them. 

3. Loan/Overdraft Facility

FDs have the upper hand here! It enables you to avail a loan or an overdraft facility against your fixed deposit. However, ELSS doesn’t provide this option.

4. Credit Card Facility

If you have an FD account, you can use it as a collateral to apply for a credit card. ELSS does not offer this facility.

5. Returns

ELSS offers higher returns as compared to fixed deposits. However, the rate of returns may vary for ELSS, whereas the interest rate for an FD is predetermined.

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What is ELSS?

Equity Linked Savings Scheme or ELSS is a type of mutual fund investment that offers dual benefits of wealth generation and tax savings. ELSS funds are the only category under mutual funds where you can claim tax exemptions on your returns.   


These funds fall under the equity category (open-ended), which means that more than 65% of the money is invested in equity. 


One can save taxes up to ₹1.5 Lakhs under Section 80C of the Income Tax Act. You can choose to invest in either the growth option or the dividend option. In the growth option, money is reinvested and keeps on growing until the time you redeem it. 


The dividend option is further sub-divided into dividend reinvestment and dividend payout. The former means the dividend is reinvested, and the latter is paid out by the fund at specified periods of time. The dividend paid out is also taxed.


fd vs elss

Key Features of ELSS

The following are some of the key features of the ELSS funds:

  • ELSS funds come with a lock-in period of 3 years

  • After the lock-in period, you can either redeem all the amount or reinvest all or a part of it as per your needs

  • The portfolio in which the money is invested is transparently available to all investors by the respective fund

  • You can choose to invest either a lump sum amount or through a systematic investment plan or SIP, with the latter generally considered better

  • Even if you are new to investing, you need not be wary of ELSS funds as the fund manager who manages your investment

  • There is no maximum limit for investment in ELSS 

  • Even if you invest over and above the tax exemption limit, you will get deductions only up to ₹1.5 Lakhs as specified under Section 80C 

A Few Things to Keep in Mind

The Union Budget of 2018, proposed to levy a 10% long-term capital gain (LTCG) on returns of over ₹1 Lakh on the ELSS scheme. The proposal came into effect on April 1 of that year. Prior to this, returns under the ELSS enjoyed a complete tax rebate. 


Historically, ELSS funds have provided higher returns as compared to other traditional investment avenues. On average, these schemes have offered 12%-16% returns in the last 5 years, with some even providing returns of over 20% in 5 years.


Although its equity exposure makes it risky, the power of compounding ensures that your money is doubled, provided you invest for say 5 years or more.

What is an FD?

An FD a Fixed Deposit allows you to invest a fixed sum for a certain period of time and correspondingly earn interest on it.


You can open an FD with either a bank or a non-banking financial institution as well whichever offers attractive interest rates. Since the money invested in fixed deposits is free from market fluctuations, they have been quite popular as a saving option.


You can also invest in a tax-saving FD on Bajaj Markets and grow your savings steadily. In this FD, you get a tax deduction under Section 80C of the Income Tax Act of 1961. Under this provision, you can claim a deduction of a maximum of ₹1.5 Lakhs. 


These FDs come with a lock-in period of 5 years. However, the interest is taxable and no partial or premature withdrawal is allowed.

Key Features of Fixed Deposits

The following are some of the notable features of fixed deposits:

  • The interest rate is decided by the bank or non-banking financial institution as per the prevailing interest rate

  • You cannot make a withdrawal before the tenor of your FD ends without incurring penalty charges

  • The interest earned is added to your income and you are taxed as per the tax slab you fall into

  • It is a low-risk, guaranteed return option for risk-averse investors, and for those looking to park their money in a relatively safer avenue

  • It does not protect you from inflation, in case the rate of inflation is higher than the rate of interest of your FD

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Taxability of ELSS vs FD

The ELSS vs Tax-saver FD debate is a long-standing one. Hence, here’s a breakdown of how taxes work in both cases. As per Section 80C of the Income Tax Act of 1961, tax-saving FDs and ELSS can be your conduits to tax benefits. 


You must, however, keep in mind that the returns you earn through these investments are taxed separately. Tax-saving FDs aren’t as efficient when it comes to tax benefits as ELSS investments are. 


The long-term monetary gains of up to ₹1 Lakh are tax-exempt on ELSS. This makes ELSS a preferred investment option for those falling under higher income tax brackets. If you come under a higher tax bracket, an ELSS can prove to be very useful for you since. 


All mutual-fund dividends are clubbed with your overall income and tax you on the basis of your income slab.  


Be it ELSS or an FD, making an investment is always a good decision. This not only helps you build your corpus for your future, but also helps you secure your present. 


As for the tax-saving FD vs ELSS argument, choosing either ELSS or FD as an investment you prefer depends completely on your risk appetite and financial goals. However, both bring you amazing returns and tax benefits. 


Both of these investment avenues also come with the advantages of lower risk or higher return margins. Either way, be it mutual funds or fixed deposits, you can always rely on Bajaj Markets to offer you the industry’s best options.


When it comes to a comparison, the decision entirely depends on various factors such as your risk appetite, the period of investment, etc. When it comes to ELSS the lock-in duration happens to be 3 years and the risk factor is a tad bit higher. 


However, for FDs, the lock-in period can range between a few days to 10 years and there is very little risk involved. While ELSS have a higher potential for better returns, FDs are secure and the returns are guaranteed.

No, premature withdrawal is not allowed for ELSS investments.

For long-term capital/monetary gains, the tax exemption is up to ₹1.5 Lakhs.

If your risk appetite is relatively lower, an ELSS might be a little unfavourable for you. The risk involved in ELSS investments is high since its exposure to the equity market is larger. Hence, where market fluctuations don’t affect FDs, they actively alter your returns for ELSS.

Since ELSS investments are directly associated with the equity market, the risk factor is higher due to market volatility.

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