ELSS Scheme (Equity Linked Savings Scheme)

Equity Linked Savings Scheme (ELSS) is a type of mutual fund scheme that mostly invests in equity as well as equity-related instruments to produce high returns. The thing that makes ELSS different from many other equity mutual fund schemes is that investment that you can do up to 1.5 lakh in ELSS. ELSS is eligible for assumption from taxable income in a financial year. This scheme comes with a fixed lock-in period that is of 3 years for each SIP. This scheme is the only mutual fund scheme that is able to qualify for tax deduction under Section 80(C) of the IT Act.


The Benefits of Investing in Equity Linked Savings Scheme are mentioned below:

High Returns

Since the Equity Linked Savings Scheme is also known as an equity scheme. This scheme can deliver exponential returns in the long run. Although risky, investment in Equity Linked Savings Scheme has the potential to deliver appreciably higher returns when compared to conventional tax saving instruments. Moreover, Equity Linked Savings Scheme has the lowest lock-in period amongst many other tax-saving avenues.

Tax Exemption

It would be a great thing if you get high investment growth when your mutual fund savings offer tax-saving opportunities. This scheme will allow you to save taxes as well as investment up to ₹1.5 lakh. This scheme is eligible for tax exemption.


The investment portfolio of the scheme consists of balanced allocation to different quality classes like equity and debt securities. Besides this, there are various funds diversify within the equity category as well; to allocate assets to large-cap, mid-cap, and small-cap equity stocks. With the help of this scheme, one can quickly diversify their overall asset portfolio as well as effectively mitigate market risk.

Professional Management of Investment

The investment portfolio is specially managed by professional experts who are well-informed about the market reaction and performance of capital markets; the investors’ cash is in safe hands. Even if you do not have much information about the working of economic markets or lack time to follow the market, you can still capitalize on the income from equity markets, with the investment in ELSS.

Disciplined Investment

Investment in this scheme requires a minimum period of 3 years, which instils investment regulation amongst consumers. For a more well-organized disciplined investment approach, you can also invest with the Systematic Investment Plan (SIP) in this scheme, which requires sporadic instalments in the fund on a prearranged date. However, it should be renowned that each SIP instalment remains locked-in for three years.

Tax Implications on Equity Linked Savings Scheme

As it has already mentioned above, the investment you can do in ELSS is up to 1.5 lakh for deduction from payable income in the financial year. Here we will discuss ELSS taxation with the help of various examples:

Let’s imagine if an individual has 2 lakh disposable taxable income in a financial year, and she or he decides to invest the amount in ICICI Prudential Long Term Equity Fund. Then only 1.5 lakh out of this entire amount would be eligible for tax deductions, dipping your taxable income in that year. You must always keep in mind that it is applicable if you do not have any other tax-saving investments permitted for deduction under Section 80(C) of the IT Act.

Who Should Invest in ELSS Scheme ?

  • ELSS provides the best opportunity for those people who want to reduce their tax liability along with soaring capital growth. If you are also looking for equity investment avenues that this scheme will deliver significant returns in the long run, you can go for this fund.
  • This scheme is applicable for those investors with a long term investment horizon, most preferably more than three years, as the fund has a minimum period of 3 years. It has been seen that equity securities perform well in the long run, and this compulsory lock-in period makes sure that the investors remain invested.
  • As the fundamental assets mostly consist of equity securities, that are quite volatile. The investor must have a risk enthusiasm to invest in ELSS as well as a long term wealth creation goal.
  • If you have already invested in any other tax-saving instruments under Section 80(C) up to 1.5 lakh, then it is advisable to opt for additional equity funds that do not have any minimum period. One can also even consider other tax saving instruments that can come under any different sections to save tax, for example, health insurance for self, spouse or parents, or National Pension System.

How to Invest in ELSS Funds?

There are two methods through which a person can invest in Equity Linked Savings Scheme:


The person can invest in ELSS online seamlessly through online platforms like Paisabazaar.com. He or she can directly apply through the websites of the Asset Management Companies (AMCs) that are offering the fund.


The person is also eligible to apply offline for this scheme. This secure mode of investment needs an investor to fill a form and then submit it at the nearby branch of the fund house, or he can invest through a broker as well.

If you want learn in detail about this scheme, you can visit this official RBI bulletin.

Frequently Asked Questions

Q: What are Equity Linked Savings Scheme funds?

ELSS funds are also known as tax saving mutual funds, in which the majority of the funds are invested in equity schemes.

Q: What is the lock-in period for ELSS funds?

The ELSS has a lock-in period of 3 years.

Q: Is the ELSS maturity amount taxable or not?

No, the return or maturity amount of ELSS is entirely tax-free.

Q: Can a person withdraw ELSS before three years?

No, the person is not able to withdraw ELSS before three years.

Q: Is it reasonable to invest in ELSS scheme? 

Investing in Equity Linked Savings Scheme is a good option as it offers a higher return as well as short lock-in-period.