What Are ELSS And What Are Its Benefits?

What Are ELSS And What Are Its Benefits?


Because they offer returns adjusted for inflation, mutual funds have long been a fantastic choice for investors. Mutual Funds have grown increasingly dynamic and expanded the potential for financial benefits in recent years. A tax-saving plan known as ELSS Mutual Funds is drawing in many investors.

What is an ELSS fund?

According to the guidelines of Section 80C of the Income Tax Act of 1961, an ELSS fund or an equity-linked savings scheme are the only types of mutual funds that qualify for tax deductions. By investing in ELSS mutual funds, you can receive a tax credit of up to Rs. 1,50,000 and save up to Rs. 46,800 in taxes annually.

The majority of the portfolio of ELSS mutual funds is allocated to equities and equity-linked instruments, such as listed shares, making up 65% of the portfolio. They might also be somewhat exposed to fixed-income securities. The shortest lock-in time among all Section 80C investments is three years for these funds.

Features of ELSS funds

  • Section 80C provides tax benefits of up to Rs 1,50,000 annually.
  • Three years is the lock-in period for ELSS funds, while there are no provisions for an early withdrawal.
  • There is no maximum investment amount in ELSS, but different fund firms have other minimum investment requirements.
  • The only tax-saving option that has a chance of providing returns that can outpace inflation is an ELSS fund.
  • Tax deductions and personal savings are two advantages of investing in ELSS funds.
  • An ELSS fund’s portfolio is primarily made up of stocks, while they also have some allocation to fixed-income assets.

Benefits of ELSS funds

Lock-in period

Extended lock-in periods feature popular tax-saving products like the Public Provident Fund (PPF) and tax-saving Fixed Deposits (FDs). For instance, the lock-in time for PPF is 15 years, whereas the lock-in period for tax-saving FDs is 5 years. ELSS funds, in contrast, have a lock-in term that is only three years long. This can provide you with the choice to take your money out sooner if you have any urgent financial objectives.

High rates

ELSS funds can offer rewards that are better than a basic savings plan due to their connection to the equity markets. You’ll see that over ten years, ELSS fund returns are comparable to some mutual fund investments and may yield significantly better returns than alternative tax-saving strategies.

Tax Savings

Only ELSS funds are eligible for tax benefits of roughly Rs 1.5 lakh per year by contributing to the program. Tax deductions on these monies are permitted under Section 80C of the Income Tax Act.

Even with the new tax law, which makes long-term capital gains over Rs 1 lakh taxable, these funds remain one of the best ways to reduce your tax burden. Compared to alternative investments like Unit Linked Insurance Plans (ULIPs) or Public Provident Funds provide better post-tax returns (PPF).

Lump sum or SIP

Two ways exist for investing in ELSS. You can use a SIP to invest each month if you receive a steady paycheck. Alternatively, you can invest it all at once in ELSS if you have extra money.

You can invest as little as Rs. 500 monthly in ELSS with a SIP. You can compare SIP and mutual fund differences.


The minimum monthly investment amount for ELSS programs often called the Systematic Investment Plan, is Rs 500. (SIP). Thus, you can see your money increase by making the least monthly investments.

Bottom Line

One of the millennials’ most significant annual financial goals may be tax savings. ELSS Mutual Funds might provide millennials with large wealth building over a long investment period through disciplined investing and tax savings. You should speak with your financial planner about ELSS’s potential tax benefits and consider this market’s suitability for long-term investing.