Investors are always on the lookout for opportunities that can help them grow their wealth, earn regular returns, and save on taxes. While there are numerous investment options in the market, most returns are subject to taxation under Income Tax rules.

This is where Equity Linked Savings Schemes (ELSS) come into play. ELSS mutual funds are tax-saving equity funds that not only offer the potential for long-term wealth creation through equity investments but also provide tax benefits under Section 80C of the Income Tax Act. They are an effective way for investors to combine growth and tax savings in a single investment.

Equity Linked Savings Schemes (ELSS) are equity-oriented mutual funds that invest a significant portion of their corpus in equities or equity-related instruments. Popularly known as tax-saving funds, ELSS allows investors to claim a tax deduction of up to ₹1,50,000 under Section 80C of the Income Tax Act, making them a preferred choice for taxpayers looking to save on taxes while investing in the stock market.

ELSS funds come with a mandatory lock-in period of three years, meaning your investment remains locked during this time. At the end of the tenure, any income earned is treated as Long-Term Capital Gains (LTCG) and is taxed at 10% if the gains exceed ₹1 lakh. Over the years, ELSS schemes have gained popularity among investors for combining potential wealth creation with tax benefits in a single investment option.

Equity Linked Savings Schemes (ELSS) are equity mutual funds with a diversified portfolio, investing primarily in publicly traded companies across large, mid, and small-cap segments and various industries. The fund managers carefully select stocks through extensive market research to create a portfolio that aims for optimal long-term wealth growth while managing risks effectively.

Investing in ELSS funds also offers significant tax benefits. Contributions to these funds are eligible for a deduction of up to ₹1.5 lakh under Section 80C of the Income Tax Act, allowing investors to save up to ₹46,800 annually in taxes. This combination of wealth creation and tax savings makes ELSS a popular choice for long-term investors seeking both growth and financial efficiency.

1. Equity-Focused Investment: At least 80% of the fund's corpus is invested in equity and equity-related instruments.
2. Diversified Portfolio: Investments are spread across different market capitalizations, sectors, and themes to optimize growth and manage risk.
3. Lock-In Period: ELSS funds have a mandatory lock-in of three years, with no maximum tenure on the investment.
4. Tax Benefits: Investments are eligible for tax deduction under Section 80C of the Income Tax Act
5. Long-Term Capital Gains (LTCG): Any income earned is treated as LTCG and taxed according to prevailing tax regulations.

1. Invest through online mutual fund investment platforms like Groww.
2. Invest through an existing demat account.
3. Invest through registrars.
4. Invest through an agent.

Diversification: Most ELSS funds invest across a diverse group of companies ranging from small-cap to large-cap and across various sectors, helping add diversification to your investment portfolio.

Low minimum amount: Most ELSS schemes allow investors to start investing with as low as Rs. 500, enabling investment without accumulating a large investible corpus.

SIPs: While lump-sum investments are possible, most investors prefer SIPs as they allow investing small amounts and help build wealth over time.

Additionally, investors can invest as much as they want but can avail tax benefits only up to the limit specified under Section 80C of the Income Tax Act. Investors can choose to stay invested even after the mandatory lock-in period of 3 years for as long as they wish.

ELSS mutual funds come with a mandatory lock-in period of three years, which means investors cannot book short-term profits. As a result, all returns generated from ELSS investments qualify as long-term capital gains (LTCG). These gains are tax-free up to ₹1 lakh in a financial year, while returns exceeding this limit are taxed at 10%, making ELSS a tax-efficient investment option for long-term investors.

In addition to capital gains benefits, ELSS funds also offer tax deductions on the invested amount under Section 80C of the Income Tax Act. Investors can claim deductions of up to ₹1.5 lakh per year across eligible instruments such as ELSS, PPF, NSC, and others. This cumulative benefit helps reduce taxable income while encouraging disciplined, long-term investing.

Overall, the combination of a three-year lock-in, tax deductions on investment, and favorable LTCG taxation makes ELSS schemes an attractive choice for investors looking to save taxes and build wealth over time.

Q1. What is the meaning of ELSS mutual funds?

ELSS mutual funds fall under the category of diversified equity mutual funds. These funds invest at least 80% of their assets in equities and equity-related securities, while a small portion may be allocated to debt instruments.

Q2. Are ELSS mutual funds risk-free?

ELSS is one of the most popular tax-saving mutual fund options. Since these funds primarily invest in equities and equity-linked instruments of growth-oriented companies, they are not risk-free. ELSS funds are best suited for investors who understand equity market risks and are comfortable with market fluctuations.

Q3. Can I withdraw my ELSS investment after three years?

Yes, investors are allowed to redeem their ELSS investments after the mandatory lock-in period of three years. For lump sum investments, the entire amount can be withdrawn after three years. In the case of SIPs, each individual installment has its own three-year lock-in period.

Q4. Who should consider investing in ELSS funds?

ELSS funds are suitable for salaried individuals as well as first-time investors who are looking for tax savings along with long-term wealth creation.

Q5. What is the equity exposure of ELSS funds?

ELSS funds invest a minimum of 80% of their total corpus in equity and equity-related instruments.