Let’s talk about Equity Linked Savings Scheme (ELSS) of Mutual Funds

ELSS is a great choice to save taxes compared to other traditional investment instruments.

ELSS funds usually invest across a wide range of companies in different sectors.


Mutual funds are a great investment option for many people to grow their money. Apart from the ease of investing and professional fund management, it is an attractive investment choice for them due to the tax benefits it offers. Saving taxes can be a challenge for many people, especially for those who belong to the corporate world. Even if there are plenty of financial products like Fixed Deposits, National Savings Certificates, and Public Provident Fund available to save tax, the return potential of them is limited. So, many people prefer Equity-Linked Savings Schemes (ELSS) for investing, as it can be a great choice to save taxes compared to other traditional investment instruments. Let us check what Equity-Linked Savings Schemes is and how it benefits taxpayers.

Equity Linked Savings Scheme funds

Equity Linked Savings Scheme funds (ELSS) are tax-saving mutual fund schemes primarily invest in stock market, ideal for investors who plan to generate wealth and save taxes.  These mutual fund plans stands out from other schemes with its high return potential and partially taxable nature. A mandatory lock-in period of three years is the main feature of ELSS.  The lock-in period of 3yrs fund managers get sufficient time to manage the investment properly, and make good returns for the investors. You can sell this fund only after three years from the date of its purchase. Instead of lump sum, if you opt for SIP for your ELSS investment, each installment of it has a separate lock-in-period of three years. That means each of them has different maturity date.

If you consider the lock-in-period of other saving investments, Equity Linked Savings Schemes have the advantage of the shortest lock-in-period allowed under section 80C of the Income Tax Act. With such mandatory lock-in-period, investors can withstand the ups and downs in the share market and acquire good returns. Anyone who plans to save tax in 80C of the Income Tax Act can consider investing in ELSS. As an equity-based investment, it is ideal for those who are looking for long-term plans and open to risks. With a lock-in period of three years, the gains from ELSS are treated as long-term capital gains and taxed at the rate of 10% for the gains over Rs.1 lakh.

Features of ELSS

  • Mandatory to invest at least 80% of the total investment corpus in equity or equity-oriented instruments
  • Lock-in-period of three years
  • No maximum tenure of investment
  • Income from ELSS investment treated as long-term capital gains and taxed as per the tax rules
  • Investors can avail tax exemption under 80C of the Income Tax Act on the invested amount

Advantages of Equity-linked savings scheme

Diversification: ELSS funds usually invest across a wide range of companies in different sectors. Such an investment method helps to add the diversification element to your portfolio.

Minimum-lock-in period: Equity Linked Saving Scheme has the shortest lock-in period of three years for taxation purposes. Many alternatives to ELSS like Public Provident Fund (PPF), National Saving Scheme (NPS), and Fixed Deposits have a lock-in period of more than three years. The lock-in period of PPF is 15 years, whereas NPS has a lock-in period of 18-20 years. So, with the shortest lock-in period, ELSS can provide maximum tax benefits to investors with high returns. The returns from most of the investments are fully taxable, but the returns from ELSS are partially taxable.

Low amount to start investing: Investors can start their ELSS schemes even with a low amount of Rs.500. There is no need to amass a large investible corpus in ELSS to start your investing.

SIP: Most people prefer investing in their ELSS mutual fund scheme through the SIP method, even if it allows a lump sum investment option. It helps them to create wealth by investing in small amounts, and at the same time, they can enjoy the tax benefits.

Taxation: As a tax saving scheme, an investor can avail a tax benefit up to Rs. 46,800 under section 80C of Income Tax Act by investing up to 1.5 lakhs in ELSS. Even if you invest more than that, tax benefits avail only up to Rs.1.5 lakhs.

That’s why Comparte Investment team asks do you have “Nivesh Ki Aadat”.

With this one can say “Mutual Fund Sahi hai”,  so let me do Nivesh