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I’m 25. Which Tax Saver Should I Buy For 80C?

Adhil Shetty

I am 25 years old and will be filing a return for the first time next year. I’m looking to buy a tax saver under Section 80C. Which one should I choose from: ELSS or a tax-saver FD and why?


ELSS and tax-saver FD (also known as the five-year FD) are two different types of investment instruments in terms of risk and returns.

An Equity Linked Saving Scheme (ELSS) is a mutual fund scheme which invests in equity assets class to generate a return, whereas a tax-saver FD is a debt-oriented product.

ELSS carries high market risk, but at the same time, it offers the opportunity to earn a comparably high return. On the other hand, the tax-saver FD provides a low return with very low risk. The lock-in period for ELSS is 3 years, whereas the tax-saver FD requires a minimum lock-in of 5 years. Also, you can invest in ELSS using the SIP mode whereas tax-saver FD requires a lump sum investment.

It is important to know here that interest earned on tax-saver FDs is subject to tax according to the applicable slab rate of the investor. Whereas long term capital gains in excess of Rs. 1 lakh from an equity scheme in a financial year are subject to a 10% tax.

Young taxpayers can take high risks and invest for the long term. Therefore, they can take exposure in an ELSS fund to earn a high long-term return. As young people may find difficulty in making a lump sum investment, they can use the SIP method to invest in an ELSS fund of their choosing.

A young taxpayer should invest a little portion of the total investment in tax-saver FD for diversification and risk mitigation. As they age, the taxpayer can switch from equity investment to debt scheme to reduce risks as per changes in their risk tolerance capacity.

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