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All You Need to Know about the Tax-Saving ELSS

Author: Shashank Pawar
by Shashank Pawar
Posted: Aug 29, 2019

Introduction to ELSS

If you wish to learn about Equity Linked Savings Scheme Funds and how they can help you to save tax on mutual funds, this article can guide you. To start, ELSS is short for Equity Linked Savings Scheme and it can help you to save up to Rs. 1.5 lakhs under Sec 80C of the Income Tax Act. ELSS investment has a lock-in period of three years. It is a great way to grow your money as this scheme offers both dividend and growth options. You can opt to invest in ELSS through SIP (Systematic Investment Plans).

ELSS funds invest up to 65% of the money in equity, so you need to be aware of market risks. They are indeed a riskier option compared to other tax-saving plans like 5-year FDs, PPF (Public Provident Fund), and NSC (National Savings Certificate).

  • ELSS Investment Features Favorable lock-in period: One of the advantages of ELSS funds is their lock-in period is just three years compared to 5 years for tax-saving FDs. In fact, ELSS offers the lowest lock-in period among all tax-saving schemes.

  • Helps to save taxes: As mentioned earlier, ELSS is one of the best instruments to save taxes up to Rs. 1.5 lakhs each year. However, dividend obtained from ELSS investment is taxable at the rate of 11.65%. Alternatively, you can opt for the growth option and keep re-investing your money until the time you wish to redeem the scheme and make profits.

Benefits of ELSS Funds

  1. After the three-year lock-in period is over, you can withdraw 100% of the funds.

  2. The ELSS investment portfolio is made available transparently to all investors.

  3. You have the flexibility of investing as a lump sum or via SIP.

  4. ELSS funds are a great way to grow your money as the returns they generate are comparatively higher than competitor schemes.

  5. ELSS investment is managed by a knowledgeable fund manager. Therefore, this scheme is ideal for newbies to investors who may need help in selecting the best options.

  6. Only the tax-saving benefit is Rs. 1.5 lakhs per year, but you can opt to invest more than this amount in ELSS funds in a year if you like the scheme and are confident of getting good returns.

On the Flip Side Now, let’s look at a few issues that you need to know about while considering ELSS investment. This will give you a well-rounded overview of the pros and cons of ELSS which help you save tax on mutual funds.

Since this investment is equity-linked, it’s more suitable for investors with a greater appetite for risk. Conservative people can opt for FDs, PPF, NPS (National Pension System), NSC, or other schemes.

The money received after the three-year lock-in period is taxable under long term capital gain tax.

As with any other mutual fund, returns are not guaranteed, which can be a turnoff for conservative investors.


To sum up, ELSS funds are a great way to save tax on mutual funds and their lock-in period is just three years. So, if you have the appetite for investing in this equity-linked scheme, go for ELSS to save tax and grow your money too.

This article can learn about ELSS funds and how they can help you to save tax on mutual funds and also ELSS investment has a lock-in period of three years. It is a great way to grow your money

About the Author

Here's a little bit about myself. I've done a Masters in Economics and teach the subject to high school students. I am 32 years old and married to an investment advisor. A Dhoni fan who loves to play football! I am a sports enthusiast and a firm beli

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Author: Shashank Pawar

Shashank Pawar


Member since: Dec 24, 2018
Published articles: 44

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