ELSS ( Equity Linked Savings Scheme)

An Overview on Equity Linked Saving Scheme

Equity Linked Saving Scheme is commonly called as ELSS by the investors. One of the best tax-saving instruments, ELSS comes with a lock-in period of 3 years. The amount invested in ELSS qualifies for tax exemption under Section 80C of the Income Tax Act, 1961. The investment amount is deductible from the gross annual income of an individual in a financial year while calculating the taxes. You can claim deduction for a maximum amount of upto ₹1.5 lakh in a financial year. What needs to be noted here is the fact that tax benefits can be availed only on the amount invested and the financial year in which the investment is made.

ELSS ( Best Tax Savings MF)
Franklin India Taxshield – Growth DSP BlackRock Tax Saver Fund
Reliance Tax Saver (ELSS) Fund Kotak Tax Saver Regular Plan
Birla Sun Life Tax Relief 96 Birla Sun Life Tax Plan
Mirae Asset Tax Saver Fund – Regular Growth  

How to Invest in ELSS?

You can choose either the lump sum route or systematic investment plan (SIP) to invest in ELSS and save taxes. The SIP mode allows investment at periodic intervals-monthly, quarterly, half-yearly or annually.

Points to be Kept in Mind

  • Focus on Long-term Performance – As far as the question of picking from a gamut of ELSS funds are concerned, you should give due attention to the performance of several funds falling under this category. Choose the one that has given substantial returns over a long period of time, in the range of 5-7 years. Avoid getting influenced by the short-term performance, say 6 months to a year.
  • Be Clear of Your Financial Goals – Your choice of investment is dictated greatly by the financial goals that you may like to achieve. So, if you are seeking capital appreciation, choose the growth option and avoid dividend option. The dividend is actually paid to you from your own money. The dividend option will be good when you require money at periodic intervals.
  • Risk-Profile Assessment – You should be aware of your risk-profile before investing in ELSS as it is an equity scheme and therefore can be very risky. But a long-term investment here can be highly beneficial both in terms of tax savings as well as wealth creation. So, if you have the ability to take high risk, you are a fit for ELSS. However, if you are a conservative investor, you should choose a style of investment that would align with your investment behaviour.
  • Avoid Redemption After Lock-in Period – As an investor, you may have the tendency to redeem the funds as soon as the 3-year lock-in period is over. But avoid doing so as you could lose out on the opportunity to make extensive gains if the fund has been performing well. Taking into account that the money is invested in equities, you should wait for at least 5-7 years before redeeming the fund. There can also be a possibility that the money accumulated in ELSS may not be great at the end of 3 years due to the volatility of the stock market. In that case, it would be wise to wait until the investment surges to an expected value.


  • Best tax saver under section 80C.
  • No tax levied when held for long term capital gains. You can invest into ELSS and deduct upto Rs. 1,50,000/- from your taxable income to effectively reduce your tax liability.
  • Shorter lock – in period (i.e 3 years) as compared to other tax – saving schemes.
  • One can enter into ELSS scheme through SIP with as low as Rs.500/- per month.
  • Savings give 8% whereas ELSS may produce higher returns comparatively depending upon market rates.

ELSS Vs Other Tax Savers

There are certain advantages that give ELSS an edge over other tax-saving instruments such as public provident fund (PPF), life insurance, bank fixed deposit, etc. Want to know which are they? Check out the points below.

  • Most of the tax saving investment products come with a lock-in period of 5-15 years. On the other hand, ELSS has a shorter lock-in period of 3 years.
  • ELSS can give market-linked returns as it invests in equities, while other tax-savers are not supposed to offer such returns.
  • ELSS is professionally managed by the fund managers of the asset management companies (AMCs). The same can’t be said about other tax savers

DISCLAIMER – Mutual Fund investments are subject to market risks. Please read all the scheme related documents carefully before investing.

DISCLAIMER – Mutual Fund investments are subject to market risks. Please read all the scheme related documents carefully before investing.

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