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What are ELSS Funds:

ELSS, or Equity Linked Savings Scheme, is a tax-saving mutual fund recognized under Section 80C of the Indian Income Tax Act, offering benefits of up to ₹1.5 lakhs, which means that investors can claim a deduction of up to 1.5 lakhs from their taxable income by investing in ELSS funds. ELSS has a lock-in period of 3 years, making it ideal for investors aiming for both tax advantages and long-term wealth growth through equity investments.

Features of Equity linked saving scheme:

  • At least 80% of the corpus is invested in equity or equity-related instruments.
  • The investment in ELSS funds has a lock-in period of three years; however, there is no maximum limit on how long investors can hold their investments.
  • Investors can avail a tax deduction of up to ₹1.5 lakhs under Section 80C through investments in ELSS.
  • Due to its three-year lock-in period, any gains from ELSS investments are classified as Long-Term Capital Gains (LTCG) and are subject to taxation according to the prevailing tax regulations.
  • The funds within ELSS are diversified by investing in equities across a wide range of sectors and themes.

Why should you invest in ELSS funds during income Tax seasons?

With the income tax season approaching, investors are actively exploring various options for tax-saving instruments. Among these options, ELSS funds stand out as particularly compelling for several reasons.

  1. Shortest lock-in period:

  2. ELSS stands out with its comparatively short lock-in period of three years, contrasting with the longer durations associated with other tax-saving instruments.

    InvestmentsELSSNational savings certificateTax saving FDPublic Provident Fund (PPF)National Pension System (NPS)
    Type of InvestmentMutual Fund (Equity)Government schemeBank Fixed DepositGovernment SchemePension Scheme
    Lock-in period3 Years5 Years5 Years15 Years60 Years age.

    Thus, for investors seeking liquidity without committing funds for extended periods, ELSS funds emerge as the optimal choice.

  3. Potential for higher returns:

  4. While some tax-saving instruments in the market may offer higher initial returns, their fixed returns often fail to keep pace with inflation. On the other hand, ELSS, being equity-oriented, combines tax-saving benefits with the potential for capital appreciation. This unique feature positions ELSS to generate returns capable of surpassing inflation over the long term.

    Here is a comparison of ELSS and other tax-saving instruments:

    InvestmentsELSSNational savings certificateTax saving FDPublic Provident Fund (PPF)National Pension System (NPS)
    Type of InvestmentMutual Fund (Equity)Government schemeBank Fixed DepositGovernment SchemePension Scheme
    Expected returnsMarket Linked7.6% (Keeps on changing)Around 5.5% to 7%7% (Keeps on changing)Market-linked
    Risk - levelHighLowLowLowModerate – High
    Tax deduction (80C)Up to 1.5 LakhsUp to 1.5 LakhsUp to 1.5 LakhsUp to 1.5 LakhsUp to 1.5 Lakhs
  5. Tax Benefits:

    • According to Income Tax regulations, investments in the ELSS (Equity Linked Saving Scheme) qualify for deductions of up to ₹1.5 lakhs under Section 80C. For investors in higher tax brackets, this translates to potential savings of up to ₹46,800 in overall tax liability through investments in ELSS Funds.
    • Due to the three-year lock-in period, redemption of your fund before this duration is not possible. Upon redemption, Long-term Capital Gains (LTCG) tax is applicable if the gain exceeds ₹1 lakh, taxed at a favorable rate of 10%. However, if the profit within a financial year remains below ₹1 lakh, no capital gains tax is required to be paid.
  6. Convenience:

  7. Even if you don't have a lump sum to invest upfront, through a Systematic Investment Plan (SIP), you can invest a fixed amount (it can be done with a small amount of as low as 500) each month on a preferred date into an ELSS fund of your choice. This approach fosters a saving habit and disciplined investing, alleviating concerns about making large investments at the end of the fiscal year.

Top performing ELSS Funds:

Scheme3 - year return5 - year return10 - year return
HDFC ELSS TaxSaver Growth25.45%17.21%15.89%
Parag Parikh ELSS Tax Saver - Growth21.30%--
Bandhan ELSS Tax saver Fund - Growth22.26%19.63%18.37%
SBI Long Term Equity Fund - Growth26.38%20.90%17.17%
Kotak ELSS Tax Saver Fund - Growth19.95%18.47%17.81%
Franklin India ELSS Tax Saver Fund - Growth21.05%17.13%16.63%
Nippon India ELSS Tax Saver Fund - Growth20.18%14.69%14.92%

Factors to consider when selecting an ELSS fund.

  • Asset Allocation – Understanding the fund's strategy helps ensure that your investment choices are in line with your financial objectives and comfort level with risk. ELSS funds are basically Multicap funds and have investments across various sectors, and market caps.
  • Fund Manager – The fund manager plays a pivotal role in managing your investments, as their competence and experience are instrumental in selecting the right stocks and constructing a robust portfolio.

Comparison under old and new tax regime, what to choose?

Under the Old tax regime: Investments made in ELSS qualify for deductions under Section 80C of the Income Tax Act, allowing individuals to reduce their taxable income by up to ₹1.5 lakhs per financial year. However, any returns earned from these investments are subject to taxation under long-term capital gains if the gains exceed ₹1 lakh.

Under the New tax regime: Under the new tax regime, investments made in Equity Linked Savings Scheme (ELSS) funds are not eligible for deductions under Section 80C of the Income Tax Act. Returns earned under this regime are also subject to capital gains tax. However, the new tax system provides different income tax slabs, offering potential benefits depending on the investor's income tax bracket. Notably, there will be no Long-Term Capital Gains (LTCG) tax on equity investments if the investor's total taxable income remains within specific brackets.


This income tax season, investing in ELSS funds emerges as an ideal choice. By leveraging the dual benefits of tax savings and wealth creation, ELSS presents an attractive proposition for investors seeking a secure financial future. Therefore, carefully considering your investment goals, risk appetite, and investment horizon, you can effectively utilize ELSS funds to achieve your objectives of tax saving and wealth creation.