Invest Smartly For Tax Benefits: ELSS Funds Unveiled

ELSS Funds

Throughout January, February, and March, most people—professionals or not—only think about one thing: “income tax.” Everyone strives to maximize their tax savings. Investing in mutual funds with equity-linked savings plans, or ELSS Funds, allows investors to build long-term wealth and take advantage of tax deductions.

Equity investors are frequently wary of the risk and potential loss associated with these kinds of investments. Instead, smart stock investors look at the overall trend and try to save as much money as possible. Elss Funds, or Equity Linked Savings Scheme, investments are one way equity investors save money.

Over the last few years, a lot of investors have come to favor equity-linked savings plans as their preferred elss funds tax-benefit investment option. However, if you also want to avail yourself of tax benefits in this financial year, then contact us at 7834834444.

What are ELSS funds?

ELSS Funds, also known as Equity Linked Savings Schemes (ELSS) funds, investor contributions primarily in equity or equity-related instruments. Since Section 80C of the Income Tax Act allows investors to deduct up to Rs. 1.5 lakh from their annual taxable income, ELSS are primarily tax-saving schemes.

Usually, these funds have a three-year lock-in period. Investors can benefit from tax deductions and long-term wealth creation by investing in ELSS mutual funds.

ELSS mutual funds allocate assets according to an asset allocation strategy that calls for 65% equity, equity-linked securities, or listed stocks. A portion of funds’ investments are also made in fixed-income securities.

What are the important features of ELSS funds?

ELSS has several important characteristics, including:

Tax Savings

Under Section 80C of the Income Tax Act, a deduction of up to Rs. 150,000 is permitted for the amount invested in an ELSS tax-saving mutual fund.

Lock-in period

A lock-in period is three years, a set amount of time during which you are required to keep the invested money and cannot sell it. Investors in ELSS are not eligible to get their money back, not even in a market downturn. This lessens the possibility of any panic-related withdrawals and raises the possibility of capital growth.

Capital Gains Tax

A minimum of three years is invested in an ELSS fund. Thus, any profits from the sale of ELSS funds are intended to be long-term. The current law states that profits over Rs. 1,000,000 are subject to a 10% tax. Conversely, the tax rate on short-term capital gains is 15%.

Creation of Wealth

Long-term returns on equity investments could be higher. But there is also a very high risk attached to them. Creating wealth typically calls for a long time horizon. An equity-oriented investment that aims to reduce short-term market volatility may be appropriate during this time. Additionally, you have the option to invest in an ELSS systematically through a SIP or in a lump sum.

Investing in a variety of funds

Investing in a new tax savings fund annually is common among investors looking to save taxes. This makes managing and keeping an eye on the portfolio challenging. Accordingly, investing in one or a small number of ELSS funds is best, depending on one’s needs and objectives.

Why should you Invest in ELSS Funds?

There are a few factors to consider that will let you know why you should invest in ELSS funds, and these are:

  • Tax benefits:

Under Section 80C of the Income Tax Act, ELSS funds provide tax benefits, making them a desirable investment choice for those seeking to save money on taxes.

  • Potential for higher returns:

ELSS funds, which primarily invest in equity, may yield higher returns than other tax-saving investment options.

  • Time horizon:

Three-year lock-in periods for ELSS funds encourage long-term investments and deter early withdrawals.

  • Diversification:

ELSS funds spread their investments over several industries and sectors, which helps to lower risk by investing in a range of stocks.

  • Expert financial handling:

Qualified fund managers who have a track record of selecting the best stocks to invest in oversee ELSS funds, which have the potential to produce higher returns than individual stock trading.

Who Should Invest In ELSS Funds?

Investors in ELSS mutual funds come in many different forms, seeking to diversify their portfolios. The following information relates to that:

Tax-Saving Seekers

ELSS funds are renowned for their ability to save taxes. If you want to save income tax, you should consider investing in ELSS funds, as they offer deductions of up to Rs. 1.5 lakh under Section 80C. They are, therefore, a well-liked option for those looking to invest in a tax-efficient portfolio.

Long-Term Investors

Long-term investment horizons are encouraged by the three-year lock-in period required for ELSS funds. Equity markets have the potential to create wealth over time for investors who can commit to holding their investments for a medium- to long-term period of time.

Young Professionals

By beginning their investment journey early, young professionals with longer investment horizons can take advantage of compounding’s power. ELSS funds may be a desirable choice for people just starting out in their careers who want to accumulate wealth over time.

Diversification Seekers

ELSS funds make investments in a diverse range of stocks from different industries. In order to spread risk across various market segments, investors seeking to diversify their investment portfolio beyond traditional options may find that ELSS funds are helpful.

Potential Growth Seekers

ELSS funds have the potential to increase in value because they are equity-oriented. ELSS funds may match the goals of investors who are looking to expand their portfolio over the long run.

Things Investors Should Consider Before Buying ELSS Securities

Before making an investment in ELSS funds, take into account the following crucial factors:

Financial Objective of Investor

Investors should be aware of their financial objectives when making investments.

Tolerance for risk

Evaluate your level of comfort with potential fluctuations in the value of your assets.

Investment time horizon

The amount of time one can invest comfortably.

Performance of funds

Review the funds’ past results before considering them.

Coverage costs

Take into account the fees that the fund levies, including running and management costs.

Portfolio diversification

Consider the position of the ELSS fund in relation to other investments.

What is the taxation of ELSS investments?

A decision about an investment must be made after considering the taxation of ELSS investments. Here are some of the important points to note:

  • ELSS capital gains are subject to the same tax laws as gains from other equity instruments.
  • Short-term capital gains (STCG) are taxed at a rate of 15%.
  • If long-term capital gains (LTCG) surpass Rs. 1 lakh in a financial year, they become subject to taxation.
  • If an amount exceeds Rs. 1 lakh, a 10% tax is applied to long-term capital gains (all equity investments are included in this limit).

How do ELSS Funds work?

Equity funds with a diversified portfolio are known as ELSS funds. These funds mainly make stock investments in publicly traded companies. The stocks come from different industries and companies with various market capitalizations (big, mid, and small). The goal of these funds is to maximize long-term wealth growth. In order to attain the best risk-adjusted portfolio returns, the fund management carefully considers stocks before choosing them.

According to the Income Tax Act of 1961, Section 80C, investments made in an ELSS fund are tax deductible. The maximum amount that can be invested is not restricted; however, the IT Act permits a tax deduction of up to Rs. 1.5 lakh. Up to Rs. 46,800 in annual tax savings are possible if you invest this sum in an ELSS.

Ways to Invest in ELSS Funds

Purchasing Equity-Linked Saving Scheme (ELSS) funds can be done through a mutual fund distributor, bank, or directly from the mutual fund company. Depending on their preferences, investors can choose to make lump sum investments or regular contributions through systematic investment plans (SIPs).

Investors should think through their financial goals and risk tolerance, perform in-depth research, and, if needed, seek advice from financial professionals before making any decisions about their investments. Investors should match their investment horizon with the three-year lock-in period that is mandatory for ELSS investments. Making well-informed decisions also requires reading the offer documents for the fund and comprehending its investment philosophy.

How do I choose the Best ELSS funds?

Before making an ELSS investment, the following are some essential things to think about:

Select a reliable fund management company.

It is essential that you do your homework on the fund management company you decide to invest in. The fund house should have previous experience managing sizeable investments.

Examine the fund manager’s background and performance history:

A three-year commitment is necessary to invest in an ELSS fund. Therefore, it is crucial to conduct adequate research on all aspects. As the primary decision-maker for the fund, the fund manager needs to be capable of generating returns at every stage of the market. In order to feel confident that your money is in capable hands, it is crucial to look up his background and areas of expertise quickly.

Examine past performance:

While past performance does not guarantee future success, it reveals how the fund has fared compared to a benchmark and gives insight into its risk management capabilities. This is usually the perspective used to evaluate the fund manager’s skill and the fund’s resilience in the event of market downturns.

Expense Ratio

The expense ratio represents the mutual fund’s management and associated running costs. Your return on investment might be reduced to that degree by a higher expense ratio. Thus, when making an investment in an ELSS fund, choose the one with the lowest expense ratio.
Lastly, if you are a novice investor, you can seek the assistance of a financial advisor to select an ELSS fund that best suits your risk-return profile!

How to redeem ELSS Units?

Investors have to stay locked in for the entire three years for each installment of the SIP before they can redeem their ELSS units. Accordingly, if an investor starts an ELSS SIP, they can only withdraw their units from the first installment after the entire 36 months have passed. The units are eligible for redemption after the three-year lock-in period has ended.

It is crucial to remember that investors can wait to redeem their units immediately, even after the lock-in period has ended. The ELSS fund becomes an open-ended, diversified scheme with an equity focus after the three-year lock-in period expires. Thanks to this flexibility, investors can redeem their units according to their unique financial needs.

The critical thing to remember is that the lock-in period starts on the day the fund units are first purchased or the SIP date. This guarantees that every installment of the SIP follows its three-year lock-in period, giving investors the flexibility to redeem units at any point after the allotted time has elapsed.

Top Elss Funds With Returns


Sub Category

Corpus( )

6 Months Return( % )

1 Year Return( % )

Quant ELSS Tax Saver Fund

Equity: ELSS




HDFC ELSS Tax saver

Equity: ELSS




Bandhan ELSS Tax saver Fund

Equity: ELSS




SBI Long Term Equity Fund

Equity: ELSS




Motilal Oswal ELSS Tax Saver Fund

Equity: ELSS




Bank of India ELSS Tax Saver Fund

Equity: ELSS




Nippon India Tax Saver (ELSS) Fund

Equity: ELSS




Franklin India ELSS Tax Saver Fund

Equity: ELSS




Parag Parikh ELSS Tax Saver Fund

Equity: ELSS




DSP ELSS Tax Saver Fund

Equity: ELSS





ELSS Funds have numerous advantages and disadvantages, just like any other mutual fund investment. An investor must try to match the fund’s objective with their investing goals. It is crucial to carefully weigh each person’s risk tolerance and investment horizons against the scheme’s risk profiles and investment duration. After performing preliminary research, investments can help investors reap the most significant rewards.

Some key reasons why ELSS is a good investment option for novice investors are tax savings, the advantage of small monthly investments, and the potential to create long-term wealth. Reach out to us at 7834834444 for financial services.


Mutual fund investments are subject to market risk; carefully read all scheme-related documents.

We recommend that you conduct a thorough investigation before selecting and investing in any of these ELSS Funds schemes. Market risk exists with ELSS Funds investments. Before making an investment, please read all of the provided materials.

Please keep in mind that the above information is provided for educational purposes only and does not imply RKFS’s endorsement of specific ELSS Funds plans. We aren’t usually the ones that handle any profit or loss you may make from investing in any of the plans mentioned above.

Frequently Asked Questions

What are the risks of ELSS?

All mutual funds are subject to market risks, especially equity funds, and so is ELSS. Due to their high risk and high return nature, these funds do not provide guaranteed returns because their performance is based on the performance of underlying securities and market-linked instruments.

Are the returns guaranteed in ELSS?

No, these are market-linked instruments; there is no guarantee of returns. Their main goal is capital appreciation; they are considered high-risk instruments due to their high-risk nature and potential for significant returns.

Who should not invest in ELSS?

If you are looking for quick returns, you should not invest in ELSS funds because it is only sometimes a surefire way to get them. Instead, it would be best if you pursued other investment goals.

Add a Comment

Your email address will not be published. Required fields are marked *

error: Content is protected !!