Investing money, sometimes is as strenuous as earning it. It requires knowledge about various options available and taking risk if you expect high returns. If you are an ambitious investor with an appetite for risk then Equity Linked Savings Scheme (ELSS) may be an attractive option. It is nothing but subscribing to the units of Mutual Fund which is equity oriented and thereby saving taxes.
Equity oriented fund means investment of 65% of fund’s corpus in Equity Capital of Stated companies/industries.


  • High Risk: Returns from these units represent equity market return and thus it keeps on fluctuating and there are no fixed returns
  • High Return: If invested carefully, one can get multiplied returns.
  • Maximum Investment: Rs. 500 is sufficient to get started.
  • Lock-in Period:3 years and there is no exit route during the tenure.
  • Open-ended: This means that investors can invest in the scheme at any day.
  • Systematic Investment Plan: Useful for small investors who cannot invest a lump sum amount. Such investors can invest monthly.
  • Tax Benefits: Exemption from tax on returns (u/s 10) and deduction of investment (u/s 80C) are available. However, equity fund dividends face a DDT @ 10% to be paid by Fund itself (w.e.f.01.04.2018)

Options for investing in ELSS:

  • Growth Option:  In this you get a lump sum amount along with profit/Income earned by fund. This give rise to long term capital gain.
  • Dividend Option:In this dividends are paid whenever fund earns income.
  • Dividend Reinvestment Plan: In this, dividend is deemed to be received. However, it is reinvested thereby increasing the total deduction claim u/s 80C.

Why So Popular?

Among various tax-saving schemes, ELSS rules in the terms of following:

  • Lower Lock-in Period: Scheme of Public Provident Fund (PPF), National Saving Scheme (NSC), Bank Fixed Deposit (FDs) requires the lock in period 6-15 years while ELSS require lock-in period of just 3 years.
  • Better Returns: As ELSS is an investment in equity markets and investing in this long term can give you better returns compared to other investment plans. Generally, returns from PPF, Bank Deposit etc. vary from 8%-9% while that of ELSS range from 25%-30%.
  • Opt for Systematic Investment Plan (SIP) investment:We can also opt for SIP investment, which brings discipline in regular investment.
  • Deduction u/s 80C: If you have done investment in ELSS, you are allowed a huge deduction of Rs. 1.5 lakhs from your gross total income.
  • Income Earned is not taxed:  Income earned from ELSS is tax exempt. Long term capital gains from ELSS funds are tax exempt but up to Rs. 1 lakhs only. After Rs. 1 Lakhs, capital gains are taxed @ 10 % without indexation.(effective from 01.04.2018)
  • Experienced professionals invest and manage your ELSS funds based on extensive market research to ensure returns.

From 1st April 2020 onwards, Income from units of mutual fund (including ELSS) are taxable in the hands of unit holders at the income tax rate applicable in case of recipient taxpayer. Also, unit holder shall be entitled to a deduction on account of interest expense up to 20% of the dividend or income from units.

From Financial year 2020-21, a new income tax regime has been inserted which does not allow you to avail of any deductions or exemptions including ELSS. But for Individual and HUF having no business income, they have the option to choose between old tax regime or new tax regime each year. So persons can calculate their estimated tax liability each year in both the regimes and be able to invest in ELSS because there is no requirement to invest the same or any amount every year in ELSS.

For FY 2019-20, the government has allowed taxpayers to invest in PPF, NSC, ELSS or any other tax saving scheme by June 30, 2020, and yet claim tax benefit.

You can further read about Investment in Pension Plans: Visit Investment in Pension Plans

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