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ELSS Funds: Why are These Popular?

There are many funds out there that you can invest in for your future. However, ELSS funds are quite popular among both beginners and advanced investors. If you have some knowledge about mutual funds then you might know about ELSS funds too.

What is an ELSS fund?

If you are thinking about what are ELSS funds, well, an equity linked savings scheme (ELSS) is a kind of an equity mutual fund that invests at least eighty percent of its total assets in equity and equity-linked instruments. An ELSS comes with a constitutional lock-in period of three years and qualifies for a tax exemption under the section 80C of the Income Tax Act that allows a maximum tax exemption of Rs. 1, 50,000. The returns on ELSS funds are dependent on a long term capital gains tax (LTCG) at ten percent. However long term capital gains up to rupees one lakh per year are exempt from tax.

In simple words, equity Linked Savings Scheme or ELSS Funds is an open-ended Equity Mutual Funds and it helps you save and provide a chance to grow money. Once almost all equity funds limit you from paying long-term wealth gains tax of 10.four % up to an amount of Rs. 1 lakh, ELSS mutual funds cater tax benefit. It is the reason these MF funds are also known as tax saving mutual fund schemes. By investing in ELSS, you can easily save tax up to rupees 1.5 lakh as per the Section 80C of IT (Income Tax) Act. However, the only catch in this type of fund is that the best ELSS funds come with a lock-in-duration of three years. It means every instalment you make towards ELSS would be subject to three year-lock-in. if you are cool with this lock in period then it is really a win-win situation for you.

ELSS vs Other Tax-saving Investment tools

Apart from ELSS, there are different other tax-saving investment tools also, for example, 5-year fixed deposits, Public Provident Fund (PPF), National Savings Certificate (NSC),  etc. However, ELSS outdo on the basis of the following reasons.


ELSS has the minimum lock-in period amidst all tax-saving investment options. ELSS has a lock in duration of three years, whereas tax-saving FDs have a lock-in of five years. Similarly, PPF has lock-in duration of fifteen years, NSC has it for five years and the National Pension Scheme (NPS) has it till the retirement age of the individual or investor.

You know with a longer investment option, you can permit your funds to increase and redeem the benefits after three years. Since ELSS funds invest the cash in equities, the option of earning good returns is much higher.  Moreover with ELSS mutual funds, you can inculcate saving habit in a proper and systematic way. These funds permit you to begin an investment with as low as that of Rs. 500 p/m. This cultivates the habit of investing.


Thus, you can plan for ELSS funds if you are ready for the best outcomes. It would definitely get you a great experience and income.