Equity-linked savings scheme (ELSS) has been ruling the roost in the tax-saving investment universe. Sure, there have been a few upstarts in the form of unit-linked insurance plans (ULIPs) and Public Provident Fund (PPF) that have attempted to knock ELSS from the perch, but they both fell short in our estimation. ULIPs were the first to bite the dust. You can read this article to know what our view is on them. Briefly speaking, we have long believed that ULIPs are a poor product and should be avoided. Neither do they help you grow your wealth in the long run nor do they provide able insurance. PPFs rolled over easily too. Our research showed that even the worst-performing ELSS delivered higher returns in the long run when compared to PPF. Clearly, ELSS's dominance has been absolute. Until now... Enter National Pension Scheme (NPS). A seasoned tax-saving option, NPS was launched way back in 2003. But they have only started gaining investors' attention in recent years. Their total market value of the investment has grown more than fourfold from Rs 1.73 lakh crore to Rs 7.16 lakh crore in the last five financial years. So, why has NPS emerged as a viable tax-saving option? How does it compare to the mighty ELSS? Can they dislodge the incumbent numero uno? Let's delve deeper. Performance We compared the 10-year returns on a daily rolling basis for equity plans of NPS Tier-I and ELSS. While NPS returns averaged 10.63 per cent per annum, ELSS stood at 12.15 per cent. Clearly, returns provided by NPS are good, but they are better when talking about ELSS. This is partly because ELSS can have a reasonable exposure to mid- and small-cap stocks, which is mostly missing from NPS. Moreover, the 10.63 per cent returns have been delivered by the equity component of NPS. We have disregarded the fact that even the most aggressive of NPS plans have to allocate 25 per cent of the corpus in slightly-safer debt plans. As a result, the overall NPS returns lose further altitude. To summarise, ELSS outperforms NPS in the long run, despite the latter having lower expenses. Liquidity NPS Tier-I has a long lock-in period. Barring a few specific
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