25 Jul, 2025
4 mins read
As Indian taxpayers seek ways to save on income tax while building long-term wealth, ELSS mutual funds have emerged as one of the most popular and efficient options. These funds not only offer tax deductions under Section 80C of the Income Tax Act but also provide the potential for market-linked returns through equity investments.
In this blog, we’ll explore what ELSS funds are, how they work, the benefits they offer, and how to invest in them the right way.
ELSS (Equity Linked Savings Scheme) funds are a category of tax saving mutual funds that primarily invest in equity and equity-related instruments. The key appeal of ELSS lies in its dual advantage: wealth creation through market participation and tax benefits under Section 80C, up to ₹1.5 lakh per financial year.
If you’ve been wondering, “What are ELSS funds and why are they popular?”, the answer lies in their ability to deliver long-term growth with a relatively short lock-in period compared to other tax-saving instruments.
Before investing, it’s important to understand the unique features of ELSS mutual funds:
Tax Deduction: Investments up to ₹1.5 lakh per year are eligible for tax deduction under Section 80C.
Lock-in Period: A mandatory 3-year lock-in period, the shortest among 80C options.
Equity Exposure: At least 80% of the portfolio is invested in equities.
Returns: Returns are market-linked, offering higher growth potential than traditional tax-saving options like PPF or NSC.
Dividends and Growth Options: Investors can choose between dividend payout, dividend reinvestment, or growth plans.
These features make ELSS funds ideal for investors seeking tax efficiency and equity exposure.
The primary reason many investors opt for ELSS is the ELSS tax saving benefit. When you invest in ELSS, the amount (up to ₹1.5 lakh per annum) is deducted from your gross taxable income, potentially saving you up to ₹46,800 in taxes annually if you fall in the 30% tax bracket.
However, it's important to note:
The 3-year lock-in period starts from the date of investment. For SIPs, each monthly instalment is locked in separately.
Returns earned are subject to LTCG (Long-Term Capital Gains) tax—10% on gains exceeding ₹1 lakh per year.
Investing in ELSS mutual funds in India is simple and can be done online or offline through mutual fund platforms, AMC websites, or financial advisors.
Choose a Fund: Select from the list of ELSS mutual funds based on performance, fund manager history, and your risk profile.
Mode of Investment: Choose between lump sum or SIP (Systematic Investment Plan).
Complete KYC: Submit PAN, Aadhaar, and other documents for verification.
Start Investing: Make your investment through the chosen mode. Monitor fund performance periodically.
Many investors prefer SIPs for disciplined investing and rupee cost averaging.
While the "best" fund depends on your risk appetite and investment goals, here are some top-performing ELSS mutual funds often considered by investors (as of early 2025):
Axis Long Term Equity Fund
Quant Tax Plan
SBI Long Term Equity Fund
Canara Robeco Equity Tax Saver Fund
DSP Tax Saver Fund
These funds have consistently shown competitive returns, but past performance doesn’t guarantee future results. Always check the latest ratings and reviews before investing.
ELSS mutual funds are suitable for:
First-time equity investors looking to enter the market with a tax advantage
Salaried individuals seeking to save tax under Section 80C
Long-term investors comfortable with market volatility
Investors with a 3–5 year horizon aiming for wealth creation
It is a smart option if you're planning to shift from low-yield tax-saving instruments like fixed deposits or NSCs.
Here are some important considerations before putting your money into ELSS:
Returns are not guaranteed: Unlike FDs or PPF, ELSS returns are market-dependent.
Lock-in applies to each SIP: Every SIP instalment has its own 3-year lock-in.
Lump sum vs SIP: SIPs are generally better for managing market risk and building discipline.
Diversification: Ensure your ELSS fund doesn't overlap too much with your other equity holdings.
Understanding these nuances will help you avoid common mistakes and optimize your investments.
ELSS mutual funds are among the most efficient tools for tax-saving and long-term wealth creation. With a relatively short lock-in period, exposure to equity markets, and eligibility under Section 80C, they combine the benefits of tax planning and investing.
If you're planning your finances for the year ahead, now might be the right time to explore ELSS tax saving options. Just ensure you choose wisely based on your goals, risk tolerance, and investment horizon.
ELSS (Equity Linked Savings Scheme) mutual funds are tax-saving equity funds that allow you to invest in the stock market while claiming deductions under Section 80C.
You can save up to ₹46,800 in taxes annually if you invest ₹1.5 lakh in ELSS and fall under the 30% tax bracket.
There is no one-size-fits-all answer, but funds like Quant Tax Plan, Axis Long Term Equity Fund, and Canara Robeco Tax Saver are often among the top performers. Always evaluate based on returns, consistency, and portfolio.
ELSS offers higher return potential and a shorter lock-in (3 years) compared to PPF (15 years) or FD (5 years for tax-saving), but it carries market risk. It's better suited for investors willing to take some risk for higher rewards.
Calculate your Net P&L after deducting all the charges like Tax, Brokerage, etc.
Find your required margin.
Calculate the average price you paid for a stock and determine your total cost.
Estimate your investment growth. Calculate potential returns on one-time investments.
Forecast your investment returns. Understand potential growth with regular contributions.
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