What Exactly Are ELSS Funds?

Equity Linked Savings Scheme permits an individual or a HUF to deduct up to Rs. 1.5 lacs from their total income under Sec 80C of the Income Tax Act 1961.

For example, if an individual invests Rs. 50,000 in an ELSS, the money will be deducted from her total taxable income, lowering her tax burden.

The lock-in term for these schemes is three years from the date of unit assignment. The units can be redeemed or swapped once the lock-in period has ended. Both growth and dividend choices are available in ELSS. Systematic Investment Plans (SIP) are another option for investors, with investments up to 1.5 lakhs in a financial year qualifying for a tax credit.

What is ELSS Fund?

Equity Linked Savings Scheme, or ELSS for short, are mutual fund investment schemes that help save money on taxes. As a result, they’re also known as tax-advantaged funds. Taxpayers can invest up to INR 1.5 lakh in particular securities and claim a deduction from their tax liability under section 80c of the Income Tax Act. PPF, postal savings like NSC, tax-saving FDs, NPS, and other permitted securities comprise ELSS.

4 Things You Should Know Before Investing In ELSS Funds

Lock-in Period

When investing in an ELSS fund, remember that the three-year lock-in period begins the day you put money into the fund. Because investments could be made as a lump amount or in smaller increments, you may need to consider one or more dates when deciding when you can securely withdraw your funds.

Make sure the units you are withdrawing have been invested for at least 3 years before removing them. You must wait at least 3 years from the time of your last donation if you wish to withdraw all your funds at once.

Investing Mode

Instead of looking to take control of ELSS funds’ rapid tax relief, you should frequently invest for your long-term gain. To profit from rupee cost averaging and market volatility, consider investing through a systematic investment plan, commonly known as a SIP.

This is known as rupee cost averaging when you buy a constant rupee value of the investment at regular periods, such as X rupees every week. You’ll purchase more shares whenever the market is down and less when the market is up since you’re naturally purchasing at different price points when the market fluctuates. This may allow you to spend less per transaction over time and profit from the stock market’s historical long-term growth.

Prepare to keep your SIP invested for at least six to eight years since this is the timeframe in which most financial experts believe investors will have recovered any short-term stock losses.

Tax Benefits

Since ELSS funds are the only equity plans that provide tax benefits, many investors choose them only for tax savings. If saving money on taxes is your only goal, you might want to check into the various investing possibilities available under Section 80C. Remember that ELSS funds invest in stocks, which entails risk and the possibility of losing some of your initial investment. Other tax-advantaged 80C investments, on the other hand, may provide more consistent returns.


Like all other mutual funds, ELSS can be purchased using a systematic investment plan (SIP). For as little as Rs 500, you can begin a SIP in an ELSS mutual fund. Top-up SIP is accessible for ELSS funds, just like other mutual funds, which means that if your income improves, you may raise your investment amount via SIP top-up.

If you want to earn a total tax benefit for investing in these funds, you may set up a monthly SIP of Rs 12,500 rather than putting in Rs 1.5 lakh all at once. Most alternative tax-advantaged investment options do not offer a systematic means to invest money regularly.


ELSS funds are a great way to save money on taxes while still investing in the stock market. If you locate a plan with goals similar to yours, you can have the best of both worlds: potential capital growth and tax savings.

However, because ELSS funds are equity funds, you may lose money in the short (or even long) term, so you shouldn’t select an ELSS fund just because of the tax benefit. Talk to a financial counselor if you need assistance with an ELSS fund.

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