All you need to know about tax on ELSS

In the journey of wealth creation, every investor looks forward to opportunities to invest hard-earned…

Everything You Need to Know Before Investing in ELSS - Making Money Safe

In the journey of wealth creation, every investor looks forward to opportunities to invest hard-earned money smartly to get handsome and regular returns and/or save taxes. Investing in Mutual Funds is the top choice of most investors as they offer higher returns than fixed investment options. In addition to this, Mutual funds offer manifold benefits like flexibility, easy accessibility, liquidity, simplicity, etc., in addition to this. They prove beneficial for tax benefits as it helps lower tax liability while the money invested through SIP keeps growing in the long run. This is the reason ELSS funds are getting popular day by day. 

What is ELSS? 

ELSS or Equity Linked Savings Scheme is a tax-saving, diversified equity Mutual Fund. This category of tax-saving Mutual funds offers you the dual benefit of capital appreciation along with tax saving under section 80 C. This fund comes under the equity category (open-ended), which means investing a key portion of their amount into equity or equity-related instruments. 

When an investor invests in an ELSS plan, they can avail tax exemption of the invested corpus up to a limit of Rs.150,000. Moreover, due to a mandatory lock-in period of 3 years, income earned under this scheme is considered Long Term Capital gain and will be taxed accordingly. 

Who should invest in ELSS Plan?

Investing in an ELSS plan can prove beneficial for people of any age group. You should think about investing in ELSS, 

  • if you are a new investor and want a safe and reliable investment option
  • if you want to invest in a low-risk investment option only
  • if you want to balance out risk and return on your investment portfolio 
  • if you are a high-risk investor who wants to diversify his/her portfolio with tax savings options 

How ELSS Mutual Funds Work

ELSS Funds are diversified equity funds where savings are invested in equity markets. Primarily investments are made in stocks of listed companies in a particular proportion in accordance with the fund’s investment objective. 

Benefits of ELSS Mutual Funds:


Tax Savings- this is the key benefit of ELSS funds. These funds are the only type of Mutual Funds that are eligible for tax deductions. Investors can avail of tax benefits under Section 80C of the Income Tax Act.


  •  Short lock-in period- ELSS has the shortest lock-in period of 3 years. Whereas other investments such as PPF (Public Provident Fund), NSC (National Savings Certificate), EPF (Employees Provident Fund ), and tax-saving fixed deposits have a lock-in period of 5 years and more.
  • Potentially higher returns- In the ELSS plan, the return on your investment is market-linked. As these funds invest in equities, your funds can grow further over a period. On the other hand, other tax-saving Fixed deposits or PPF plans are fixed income products. Thus ELSS plans have the potential to create significant wealth over a period of time. 
  • Disciplined Investment- It is possible to start investing in ELSS plans with a minimum of Rs. 500 per month. Thus, by choosing the SIP (Systematic Investment Plan) in ELSS schemes, you can start with minimum investments on a regular basis and grow wealth gradually. This surely brings a systematic and disciplined approach to investments. 

All in all, ELSS Mutual Funds prove to be one of the best investment vehicles to earn high returns with tax benefits in the long run. Surely, ELSS is a must-have instrument in your portfolio.